Manual on Non-bank Institutions

MANUAL OF REGULATIONSAN CIAL FOR NON-BANK FIN INAN ANCIAL INS TITUTIONS NSTITUTIONS FOREWORD The 2008 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is an updated compilation of regulations and policies issued by the Bangko Sentral ng Pilipinas (BSP) for financial institutions under its supervision. Available in hard and soft copies, it is a convenient reference and guide for said financial institutions in the conduct of their operations. The updated MORNBFI incorporates regulatory policies issued to align banking practices on risk management, good corporate governance, and capital adequacy, accounting and reporting with international standards. It also includes rules implementing legislative reform measures, the more significant of which are the General Banking Law of 2000, the Anti-Money Laundering Act of 2001 and the Special Purpose Vehicle Act of 2002. In providing easy access to this information, the updated MORNBFI seeks to facilitate compliance with the supervisory and regulatory requirements of BSP that will contribute to the enhancement of its partnership with financial institutions under its supervision, and ultimately to the strengthening of the Philippine Banking System and the economy. AMANDO M. TETANGCO, JR. Governor FOREWORD Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the Monetary Board recognized the need to revise and regularly update the Manual of Regulations for Banks and Other Financial Intermediaries to enable the industry to better keep pace with the anticipated rapid regulatory changes that are unavoidable in a dynamic economic enviroment. A revised Manual would also be able to appropriately take into account the strenghtened supervisory and regulatory arrangements set out in the BSP’s new charter. This Manual of Regulations for Non-Bank Financial Institutions is one of the products of that effort. It benefits from the inputs of many concerned departments of the BSP as well as the various industry associations of non-bank financial institutions. We are hopeful that this new Manual and its subsequent updates will be able to more effectively disseminate the regulatory issuances of the BSP on a timely basis and provide appropriate guidance to non-bank financial institutions. We also believe that it will be a especially useful tool at this time when the BSP has come up with many regulations and issuances in response to the unprecedented challenges posed by the Asian financial crisis. Nevertheless, we recognize that there will always be room for improvement. Our task is therefore a continuing one of constant search for a better product to provide more responsive services to the public. GABRIEL C. SINGSON Governor PREFACE (to the 2008 edition) The 2008 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is an updated edition of the 1996 MORNBFI. The updates consist of the significant policy developments and changes in statutory laws. It shall serve as the principal source of regulations issued by the Monetary Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance with the rules and regulations embodied therein. A multi-departmental Committee on the Updating of the Manual of Regulations for Banks and Non-Banks Financial Institutions was created under Office Order No. 430, Series of 2007 dated 8 June 2007. Under the aforesaid office order, the Committee is tasked to update the Manuals on a continuing basis (i) to incorporate relevant issuances (ii) propose revision/deletion of provisions which have become obsolete, redundant, irrelevant or inconsistent with laws/regulations (iii) reformulate provisions as the need arises and (iv) oversee printing of the Manuals/Updates in coordination with the Corporate Affairs Office. The Committee is composed of Director Alberto A. Reyes (Central Point of Contact Department [CPCD] II), Chairman; Deputy Director Magdalena D. Imperio (Office of the General Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo G. Barcarse, Manager II (Centralized Applications and Licensing Group [CALG]); Mr. Aristides R. Wylengco, Manager II (Examination Department [ED] III); Ms. Jocelyn L. Lobas, Manager II Integrated Supervision Department I (ISD I); Atty. Ruben B. Parto, Acting Manager II (ED I); Ms. Ma. Corazon T. Alva, Manager II (ED II); Ms. Ma. Belinda G. Caraan, Bank Officer IV (Office of Supervisory Policy Development [OSPD]); Atty. Lord Eileen S. Tagle, Bank Legal Officer III, (OGCLS); Ms. Maria Cynthia M. Sison, Bank Officer IV (OSPD); Mr. Armando M. Dizon, Bank Officer III (CALG)); Atty. Florabelle S. Madrid, Bank Officer III (CPCD I), members; and Deputy Governor Nestor A. Espenilla, Jr. of the Supervision and Examination Sector, Adviser. The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Acting Manager (CPC II), Head; and Ms. Ma. Corazon B. Bilgera, Bank Officer II (OSPD); Ms. Ma. Cecilia U. Contreras, Supervision & Examination Specialist I (CPCD II), members. The Bangko Sentral ng Pilipinas v PREFACE The 2005 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is an updated edition of the 1996 MORNBFI. The updates consist of the significant policy developments and changes in statutory laws. It shall serve as the principal source of regulations issued by the Monetary Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance with the rules and regulations embodied therein. A multi-departmental Committee on the Updating of the Manual of Regulations for Banks and Non-Banks Financial Institutions was created under Office Order No. 430, Series of 2007 dated 8 June 2007. Under the aforesaid office order, the Committee is tasked to update the Manuals on a continuing basis (i) to incorporate relevant issuances (ii) propose revision/deletion of provisions which have become obsolete, redundant, irrelevant or inconsistent with laws/regulations (iii) reformulate provisions as the need arises and (iv) oversee printing of the Manuals/Updates in coordination with the Corporate Affairs Office. The Committee is composed of Deputy Director Alberto A. Reyes (Central Point of Contact [CPC] II), Chairman; Deputy Director Magdalena D. Imperio (Office of the General Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo G. Barcarse, Manager II (Centralized Applications and Licensing Group [CALG]); Mr. Aristides R. Wylengco, Manager II (Supervision and Examination Department [SED] III); Ms. Jocelyn L. Lobas, Manager II (SED V); Atty. Ruben B. Parto, Acting Manager II (SED I); Ms. Ma. Corazon T. Alva, Acting Manager II (SED II); Ms. Ma. Belinda G. Caraan, Bank Officer IV (Office of Supervisory Policy Development [OSPD]); Atty. Lord Eileen S. Tagle, Bank Attorney I, (OGCLS); Ms. Maria Cynthia M. Sison, Bank Officer III (OSPD); Mr. Armando M. Dizon, Bank Officer II (CALG)); Atty. Florabelle S. Madrid, Bank Officer I (CPC I), members; and Deputy Governor Nestor A. Espenilla, Jr. of the Supervision and Examination Sector, Adviser. The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst. Manager (SED IV), Head; Ms. Ma. Corazon B. Bilgera, Bank Officer I (OSPD); Ms. Donah P. Marcelino, Administrative Services Officer III (SED V); Mr. Felix B. Corsino, Jr., Administrative Services Officer III (SED III), members. The Bangko Sentral ng Pilipinas vi PREFACE The Manual of Regulations for Non-Bank Financial Institutions (the “New Manual”) is not only an updated edition but also a revision of the present Manual of Regulations for Banks and Other Financial Intermediaries, Book IV (the “Old Manual”). Its adoption was impelled by certain considerations, namely: (1) that the Central Bank of the Philippines as the administrative agency of the monetary, banking and credit system which promulgated the Old Manual has been replaced by the Bangko Sentral Ng Pilipinas (BSP) as the central monetary authority and (2) that the Old Manual was last updated as of 31 December 1989 and since that time, significant developments in the statutory law and the financial system of the country have rendered many of its provisions obsolete or irrelevant. To accomplish the work of proposing revisions to the Old Manual, the Monetary Board of the BSP, in its Resolution No. 1203 dated 7 December 1994, directed the creation of a multi-departmental Ad Hoc Review Committee. This committee was officially constituted under Office Order No. 2, Series of 1995 and consisted of Deputy General Counsel Melpin A. Gonzaga (Office of the General Counsel and Legal Services, as chairman; Deputy Director Ma. Dolores B. Yuvienco (Supervisory Reports and Studies Office); Deputy Director Rolando A. Q. Agustin (Department of Commercial Banks I); Deputy Director Danilo A. Monasterio (Department of Rural Banks); Deputy Director Erlinda S. J. Marzan (Department of Thrift Banks and Non-Bank Financial Institutions), as members; and Managing Director Fe B. Barin (Office of the Monetary Board), as adviser. The technical staff of the Ad Hoc Committee was composed of Atty. Magdalena D. Imperio, Bank Attorney III, as head; and Mr. Fernando B. Caballa, Manager II; Mr. Lauro C. Abuzo, Bank Officer III, Atty. Policarpo G. Barcarse, Manager II; Mr. Nicanor F. Rillera, Manager II; and Mr. Aristides R. Wylengco, Manager II, as members. Deputy Governor Armando L. Suratos, the BSP General Counsel, acted as committee consultant. Under the aforesaid office order, the Ad Hoc Committee was instructed to examine, evaluate and review the provisions of the Old Manual for purposes of (1) deleting therefrom provisions which are obsolete, redundant, irrelevant, superfluous or inconsistent with law, (2) amending provisions so as to make them consistent with each other or to harmonize them with existing statutes, executive issuances and official policies, and (3) reformulating provisions to make them more responsive to the needs and concerns of the banking and financial intermediation industry. In discharging its mandated tasks, the Ad Hoc Review Committee sought the comments of certain departments of the BSP, particularly, Treasury, Foreign Exchange, Economic Research, Cash, Accounting, and Loans and Credit, on the proposed changes to provisions of the Old Manual relevant to their operations. Likewise consulted were the various associations in the non-bank financial intermediary industries. Their valuable suggestions contributed much to the accomplishment of this project. vii The New Manual comprises substantially the regulatory issuances of the BSP, as well as those of its predecessor agency, the Central Bank of the Philippines, as they were amended or revised through the years, up to 31 December 1996. It shall serve as the principal source of all substantive regulations for non-bank financial institutions issued by the Monetary Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance with the rules and regulations embodied therein. It is fervently hoped that the publication of this long-awaited new code of regulations for non-bank financial institution will measure up to the expectations of these institutions. The Bangko Sentral ng Pilipinas viii INSTRUCTIONS TO USERS The Manual of Regulations for Non-Bank Financial Institutions (the “Manual”) is the comprehensive authority on the specific subjects covered therein. New rules and amendments to the rules shall immediately form part of the affected section or subsection of the Manual while repealed rules shall be deleted so that the user shall no longer refer to a separate issuance, i.e., circular or memorandum, but shall instead cite the particular section or subsection of the Manual. Non-bank financial institutions (NBFIs) governed by the Manual shall comply with the provisions thereof and any violation thereof shall be punishable under the specific and/or general provisions on sanctions. The Manual contains the rules and regulations on NBFIs subject to supervision by the Bangko Sentral ng Pilipinas (BSP) under the law. Specifically, these institutions are as follows: NBFIs performing quasi-banking functions, or quasi-banks, which are subject to BSP supervision under R.A. No. 7653, The New Central Bank Act and R.A. No. 8791, The General Banking Law of 2000; NBFIs performing trust and other fiduciary activities, under R.A. No. 337, as amended; non-stock savings and loans association (NSSLAs), under R.A. 3779; and pawnshops, under P.D. No. 114. The regulations addressed to these institutions are grouped as follows: the Q Regulations, which are addressed to quasi-banks; the S Regulations, which are addressed to NSSLAs; the P Regulations, which are addressed to pawnshops; and N Regulations, which are addressed to other NBFIs subject to BSP supervision. As a code of regulations, the Manual contains the basic features of division into Parts, further subdivided into major topic headings which introduce the corresponding sections and subsections making up the provisions governing a major operation of the institutions subject to the regulations. Parts and major topic headings as well as coded section numbers and headings are made uniform for all the groups of regulations. Coding of sections utilizes six (6) digits; i.e., 4123Q.44. The first digit (4 in the example) refers to the type of financial institution (i.e., non-bank financial institutions as distinguished from banks or banking institutions, the regulations addressed to which institutions are contained in another Manual) to which the regulation is applicable; the second digit (1 in the example), to the Part number, and the third and fourth digits (23 in the example), to the section number. The other two (2) digits after the decimal point (44 in the example) refer to the subsection number. The letters Q, S, P and N are appended to the pertinent code numbers of the sections to indicate the particular category of NBFIs the regulations are addressed to, namely: quasi-banks, NSSLAs, pawnshops and other NBFIs subject to BSP supervision, respectively. For example, Sections 4161Q, 4161S, and 4161P refer to provisions of reporting requirements of quasi-banks, NSSLAs, and pawnshops, in that order. ix To illustrate, the code numbers 4161Q.2 indicates: Main caption on “Records” Subcaption on “SFAS” 4 1 6 1 Q . 2 Regulation addressed to quasi-banks Part One on “Organization, Management and Administration" Regulations addressed to NBFIs The paging is by Parts, each Part beginning with page 1, and so on, corresponding to the number of pages of the particular Part. For example, Part I, consisting of six (6) pages will start with a first page indicated as “Part I - Page 1”, and “Part I - Page 6” as its last page. The pages for updates will follow the same pagination, with letters added to indicate inserted pages, in the event amendatory regulations require additional pages. Paging is further identified as to the group of regulations the particular page belong; for example, Q Regulations. To facilitate reference, running section headings consisting of the coded numbers of the sections/subsections whose provisions are contained in a particular page are indicated at either the upper right- or left-hand corner of the page preceded by the symbols § or §§. The cut-off date is indicated immediately below the running section heads, as: 05.12.31. Thereafter, the date of the pages affected by subsequent new issuances or amendments/ repeals will be changed at the end of the semestral period during the semestral updating which shall reflect the changes that shall have occurred. x MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS Q REGULATIONS (Regulations Governing Non-Bank Financial Institutions Performing Quasi-Banking Functions) TABLE OF CONTENTS PART ONE - ORGANIZATION, MANAGEMENT AND ADMINISTRATION A. SCOPE OF AUTHORITY SECTION 4101Q Quasi-Banking Functions 4101Q.1 Financial intermediaries 4101Q.2 Guidelines on lender count 4101Q.3 Transactions not considered quasi-banking 4101Q.4 Delivery of securities 4101Q.5 Securities custodianship operations 4101Q.6 Sale, discounting, assignment or negotiation by QBs of their credit rights arising from claims against the Bangko Sentral to clients SECTION 4102Q Statement of Policy 4102Q.1 Preconditions for the exercise of quasi-banking functions SECTION 4103Q Certificate of Authority from the Bangko Sentral SECTION 4104Q Bangko Sentral Certificate of Authority SECTION 4105Q Licensing of an Investment House B. CAPITALIZATION SECTION 4106Q Minimum Capitalization SECTION 4107Q Minimum Capital of Investment House SECTION 4108Q Sanctions SECTIONS 4109Q - 4110Q (Reserved) xi C. MERGER/CONSOLIDATION SECTION 4111Q Merger/Consolidation Involving Quasi-Banks SECTION 4112Q Merger/Consolidation Incentives SECTIONS 4113Q - 4115Q (Reserved) D. RISK-BASED CAPITAL ADEQUACY RATIO SECTION 4116Q Minimum Ratio 4116Q.1 Qualifying capital 4116Q.2 Risk-weighted assets 4116Q.3 Definitions 4116Q.4 Required reports 4116Q.5 Sanctions 4116Q.6 Temporary relief SECTION 4117Q Treatment of Equity Investment with Reciprocal Stockholdings SECTION 4118Q Sanctions on Net Worth Deficiency SECTIONS 4119Q - 4120Q (Reserved) E. (RESERVED) SECTIONS 4121Q - 4125Q (Reserved) F. SECTION STOCK, STOCKHOLDERS AND DIVIDENDS 4126Q Dividends 4126Q.1 4126Q.2 4126Q.3 4126Q.4 4126Q.5 SECTIONS Definition of terms Requirements on the declaration of dividends/ net amount available for dividends Reporting and verification Recording of dividends Rules on declaration of stock dividends 4127Q - 4140Q (Reserved) xii G. DIRECTORS, OFFICERS AND EMPLOYEES SECTION 4141Q Definition; Qualifications; Powers; Responsibilities and Duties of Board of Directors and Directors 4141Q.1 Limits on the number of the members of the board of directors 4141Q.2 Qualifications of a director 4141Q.3 Powers/responsibilities and duties of board of directors and directors 4141Q.4 Confirmation of the election/appointment of directors and officers 4141Q.5 - 4141Q.8 (Reserved) 4141Q.9 Reports required 4141Q.10 Sanctions SECTION 4142Q Definition and Qualifications of Officers SECTION 4143Q Disqualification of Directors/Trustees and Officers 4143Q.1 Persons disqualified to become directors/trustees 4143Q.2 Persons disqualified to become officers 4143Q.3 Effect of non-possession of qualifications or possession of disqualifications 4143Q.4 Disqualification procedures 4143Q.5 Watchlisting 4143Q.6 Prohibition against foreign officers/employees of financing companies SECTION 4144Q Interlocking Directorships and/or Officerships 4144Q.1 Representatives of government SECTION 4145Q Profit Sharing of Directors/Trustees, Officers and Employees SECTION 4146Q Monetary Board Confirmation of Directors/Trustees and Senior Officers SECTION 4147Q Compensation and Other Benefits of Directors/Trustees and Officers SECTION 4148Q (Reserved) SECTION 4149Q Conducting Business in an Unsafe/Unsound Manner 4149Q.1 - 4149Q.8 (Reserved) 4149Q.9 Sanctions xiii SECTION 4150Q Rules of Procedure on Administrative Cases Involving Directors and Officers of Quasi-Banks H. BRANCHES AND OTHER OFFICES SECTION 4151Q Establishment 4151Q.1 Evaluation guideposts 4151Q.2 Additional capital, if required 4151Q.3 Other requirements/factors to be considered 4151Q.4 Conditions precluding processing of applications 4151Q.5 Documentary requirements 4151Q.6 Filing of applications 4151Q.7 Period within which to submit complete requirements 4151Q.8 Prohibition against operating without SEC license SECTIONS 4152Q - 4155Q (Reserved) I. (RESERVED) SECTIONS 4156Q - 4160Q (Reserved) J. RECORDS AND REPORTS SECTION SECTION 4161Q Records 4161Q.1 4161Q.2 4162Q Reports 4162Q.1 4162Q.2 4162Q.3 Uniform system of accounts Philippine Financial Reporting Standards/ Philippine Accounting Standards Categories and signatories of reports Manner of filing Sanctions in case of willful delay in the submission of reports/refusal to permit examination SECTION 4163Q (Reserved) SECTION 4164Q Internal Audit Function 4164Q.1 Status 4164Q.2 Scope 4164Q.3 Qualification standards of the internal auditor 4164Q.4 Code of Ethics and Internal Auditing Standards SECTIONS 4165Q - 4170Q (Reserved) xiv K. INTERNAL CONTROL SECTION 4171Q Internal Control Systems SECTION 4172Q Audited Financial Statements of Quasi-Banks; Financial Audit 4172Q.1 Posting of audited financial statements 4172Q.2 Disclosure of external auditor's adverse findings to the Bangko Sentral; sanction 4172Q.3 Disclosure requirement in the notes to the audited financial statements 4172Q.4 Disclosure requirements in the annual report 4172Q.5 Posting and submission of annual report SECTIONS 4173Q - 4179Q (Reserved) SECTION 4180Q Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity L. MISCELLANEOUS PROVISIONS SECTION 4181Q Publication Requirements SECTION 4182Q Management Contracts SECTIONS 4183Q - 4189Q (Reserved) SECTION 4190Q SECTION 4191Q Compliance System; Compliance Officer 4191Q.1 Compliance system 4191Q.2 Compliance officer 4191Q.3 Compliance risk 4191Q.4 Responsibilities of the board of directors and senior management on compliance 4191Q.5 Status 4191Q.6 Independence 4191Q.7 Role and responsibilities of the compliance function 4191Q.8 Cross-border issues 4191Q.9 Outsourcing Duties and Responsibilities of Quasi-Banks and their Directors/ Officers in All Cases of Outsourcing of Quasi-Banking Functions xv SECTION 4192Q Prompt Corrective Action Framework SECTION 4193Q Supervision by Risks SECTION 4194Q Market Risk Management SECTION 4195Q Liquidity Risk Management SECTIONS 4196Q - 4198Q (Reserved) SECTION 4199Q General Provision on Sanctions PART TWO - DEPOSIT AND BORROWING OPERATIONS A. - D. (RESERVED) SECTIONS 4201Q - 4210Q (Reserved) E. DEPOSIT SUBSTITUTE OPERATIONS SECTION 4211Q Deposit Substitute Instruments 4211Q.1 Prohibition against use of certain instruments as deposit substitutes 4211Q.2 Negotiations of promissory notes 4211Q.3 Minimum features 4211Q.4 Delivery of securities 4211Q.5 Regulation on additional stipulation 4211Q.6 Substitution of underlying securities 4211Q.7 Call slips/tickets for 24-hour loans 4211Q.8 Requirement to state nature of underlying securities 4211Q.9 Compliance with SEC rules 4211Q.10 - 4211Q.11 (Reserved) 4211Q.12 Repurchase agreements covering government securities, commercial papers and other negotiable and non-negotiable securities or instruments SECTION 4212Q Recording; Payment; Maturity; Renewal SECTION 4213Q Minimum Trading Lot SECTION 4214Q Interbank Borrowings xvi SECTION 4215Q Borrowings from Trust Departments or Managed Funds of Banks or Investment Houses SECTION 4216Q Money Market Placements of Rural Banks 4216Q.1 Definition of terms 4216Q.2 Conditions required on accepted placements 4216Q.3 Sanctions SECTION 4217Q Bond Issues of Quasi-banks 4217Q.1 Definition of terms 4217Q.2 Underwriting of bonds 4217Q.3 Compliance with SEC rules 4217Q.4 Notice to Bangko Sentral 4217Q.5 Minimum features 4217Q.6 Reserve requirement 4217Q.7 Inapplicability of certain regulations SECTIONS 4218Q - 4230Q (Reserved) F. (RESERVED) SECTIONS 4231Q - 4235Q (Reserved) G. INTEREST SECTION 4236Q Yield/Interest Rates SECTIONS 4237Q - 4245Q (Reserved) H. RESERVES SECTION 4246Q Reserves Against Deposit Substitutes 4246Q.1 Composition of reserves 4246Q.2 Computation of reserve position 4246Q.3 Reserve deficiencies; sanctions 4246Q.4 Exemptions 4246Q.5 Matured and unclaimed deposit substitutes 4246Q.6 Book entry method for reserve securities 4246Q.7 Interest income on reserve deposit with Bangko Sentral 4246Q.8 Guidelines in calculating and reporting to the BSP the required reserves on deposit substitutes evidenced by repurchase agreements covering government securities xvii SECTIONS 4247Q - 4255Q (Reserved) I. (RESERVED) SECTIONS 4256Q - 4275Q (Reserved) J. BORROWINGS FROM THE BANGKO SENTRAL SECTION 4276Q Repurchase Agreements with the Bangko Sentral SECTION 4277Q (Reserved) SECTION 4278Q Enhanced Intraday Liquidity Facility (ILF) SECTIONS 4279Q - 4280Q (Reserved) K. OTHER BORROWINGS SECTION 4281Q Borrowings from the Government 4281Q.1 Definition of terms SECTIONS 4282Q - 4298Q (Reserved) SECTION 4299Q General Provision on Sanctions PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS SECTION 4301Q Management of Risk Assets/Minimum Guidelines on Lending Operations 4301Q.1 - 4301Q.5 (Reserved) 4301Q.6 Large exposures and credit risk concentrations SECTION 4302Q Loan Portfolio and Other Risk Assets Review System 4302Q.1 Provisions for losses; booking 4302Q.2 Sanctions SECTIONS 4303Q - 4305Q (Reserved) A. LOANS IN GENERAL SECTION 4306Q Loan Limit to a Single Borrower 4306Q.1 Exclusions from loan limit 4306Q.2 Contingent liabilities included in loan limit 4306Q.3 Sanctions xviii 4 Demand loans 4308Q.6 Updating of information provided to credit information bureaus SECTION 4309Q "Truth in Lending Act" Disclosure Requirement 4309Q.4 Signatories SECTIONS 4313Q .3 Restructured loans 4308Q.4 Loan prepayment 4307Q.2 Floating rates of interest 4307Q.3 Prohibited use of loan proceeds 4312Q.3 Inspection of contracts covering credit transactions 4309Q.1 Definition of terms 4309Q.6 Rate of interest in the absence of stipulation 4307Q.5 Write-off of loans as bad debts 4308Q. when allowable 4307Q.3 Allowance for uncollected interest on loans 4311Q.2 Purpose of loans and other credit accommodations 4312Q.1 General guidelines 4312Q.2 Interest accrual on past due loans 4311Q.4 Reporting requirement SECTION 4312Q Grant of Loans and Other Credit Accommodations 4312Q.2 Information to be disclosed 4309Q.1 Accounts considered past due 4308Q.4 Posters SECTION 4310Q (Reserved) SECTION 4311Q Non-Performing Loans 4311Q.5 Escalation clause.1 Accounts considered non-performing.2 Renewal/extension 4308Q.3 Effect of prepayment 4307Q.7 Accrual of interest earned on loans SECTION 4308Q Past Due Accounts 4308Q.1 Rate ceilings 4307Q.4320Q (Reserved) xix .SECTION 4307Q Interest and Other Charges 4307Q. definitions 4311Q. 622 dated 16 September 2008) 4336Q. 622 dated 16 September 2008) 4336Q.6 Finance charges 4337Q. 622 dated 16 September 2008) 4336Q.1 General guidelines (Deleted by Circular No.4 (Reserved) SECTION 4337Q Credit Card Operations.13 Handling of complaints 4337Q.11 Inspection of records covering credit card transactions 4337Q.B. General Policy 4337Q.3 Minimum requirements 4337Q. termination of effectivity and reactivation 4337Q.4 Information to be disclosed 4337Q.3 Signatories (Deleted by Circular No.4335Q (Reserved) C. Other Credit Accommodations and Guarantees Granted to Subsidiaries and/or Affiliates SECTIONS 4329Q .2 Proof of financial capacity of borrower (Deleted by Circular No.14 Unfair collection practices 4337Q.7 Deferral charges 4337Q.8 Late payment/penalty fees 4337Q.4350Q (Reserved) xx .4327Q (Reserved) SECTION 4328Q Loans. UNSECURED LOANS SECTION 4336Q Loans Against Personal Security 4336Q.1 Definition of terms 4337Q.2 Risk management system 4337Q. (RESERVED) SECTIONS 4321Q .15 Sanctions SECTIONS 4338Q .5 Accrual of interest earned 4337Q.10 Suspension.12 Offsets 4337Q.9 Confidentiality of information 4337Q. RESTRUCTURED LOANS SECTION 4351Q Restructured Loans. when to consider performing/nonperforming 4351Q.4370Q (Reserved) F. (RESERVED) SECTIONS 4371Q . OFFICERS. Ceiling on Unsecured Loans SECTION 4362Q Exclusions from Aggregate Ceiling SECTION 4363Q Credit Accommodations Under Officers' Fringe Benefit Plans SECTION 4364Q Procedural Requirements SECTION 4365Q Sanctions SECTIONS 4366Q Bank DOSRI Rules and Regulations Applicable to Government Borrowings in Government-Owned or -Controlled QB SECTIONS 4367Q .1 Applicability to credit card operations SECTION 4359Q Direct or Indirect Borrowings SECTION 4360Q Individual Ceiling.2 Procedural requirements 4351Q. Single-Borrower Limit SECTION 4361Q Aggregate Ceiling.4355Q (Reserved) E.4375Q (Reserved) xxi .D.1 Definition. General Policy 4351Q.3 Classification SECTIONS 4352Q .1 Definitions SECTION 4357Q Transactions Covered SECTION 4358Q Transactions Not Covered 4358Q. STOCKHOLDERS AND THEIR RELATED INTERESTS SECTION 4356Q General Policy 4356Q. LOANS/CREDIT ACCOMMODATIONS TO DIRECTORS. 4385Q (Reserved) I.14 (Reserved) 4394Q.2 Sales contract receivable 4394Q.3 Investments in debt and marketable equity securities SECTION 4392Q Reverse Repurchase Agreements with the Bangko Sentral SECTION 4393Q (Reserved) SECTION 4394Q Acquired Assets in Settlement of Loans 4394Q.4 Settlement procedures SECTIONS 4377Q .2 Purchase of commercial paper 4391Q.3 .15 Joint venture of quasi-banks with real estate development companies SECTION 4395Q (Reserved) xxii . OTHER OPERATIONS SECTION 4391Q Purchase of Receivables and Other Obligations 4391Q.4390Q (Reserved) J. EQUITY INVESTMENTS SECTION 4381Q Investment in Non-Allied Undertakings SECTION 4382Q Investments Abroad SECTION 4383Q Underwriting Exempted SECTIONS 4384Q . (RESERVED) SECTIONS 4386Q .1 Systems and procedures for interbank call loan transactions 4376Q.3 Transfer of excess funds 4376Q.1 Booking 4394Q.G.2 Accounting procedures 4376Q.4394Q.1 Yield on purchase of receivables 4391Q.4380Q (Reserved) H. SPECIAL TYPES OF LOANS SECTION 4376Q Interbank Loans 4376Q. sanctions 4405Q.TRUST.4398Q (Reserved) SECTION 4399Q General Provision on Sanctions PART FOUR .2 Eligible securities 4405Q. sanctions 4405Q. TRUST AND OTHER FIDUCIARY BUSINESS SECTION 4404Q Authority to Perform Trust and Other Fiduciary Business 4404Q.8 Reserve deficiencies. MISCELLANEOUS PROVISIONS SECTION 4396Q Transfer/Sale of Non-Performing Assets to A Special Purpose Vehicle or to An Individual SECTIONS 4397Q .3 Valuation of securities and basis of computation of the basic security deposit requirement 4405Q.1 Prerequisites for engaging in trust and other fiduciary business 4404Q.1 Organization 4406Q. OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT ACTIVITIES SECTION 4401Q Statement of Principles SECTION 4402Q Scope of Regulations SECTION 4403Q Definitions A.4 Compliance period.5 Reserves against peso-denominated Common Trust Funds (CTFs) and Trust and Other Fiduciary Accounts (TOFA) .Others 4405Q.K.6 Composition of reserves 4405Q.2 Pre-operating requirements SECTION 4405Q Security for the Faithful Performance of Trust and Other Fiduciary Business 4405Q.7 Computation of reserve position 4405Q.9 Report of compliance SECTION 4406Q Organization and Management 4406Q.2 Composition of trust committee xxiii .1 Basic security deposit 4405Q. 8 Exposure limit to single person/entity 4410Q.5 Operating and accounting methodology 4410Q.3 Transactions requiring prior authority 4409Q.8 (Reserved) 4406Q.7 Minimum disclosure requirements 4410Q.1 .5 .4408Q.3 Administration of a Unit Investment Trust Fund 4410Q.9 Outsourcing services in trust departments SECTION 4407Q Non-Trust.8 (Reserved) 4408Q.9 Living trust accounts 4409Q.10 . or any body politic 4409Q.1 Definition 4410Q.4 Ceilings on loans 4409Q.4406Q. Non-Fiduciary and/or Non-Investment Management Activities SECTION 4408Q Unsafe and Unsound Practices 4408Q.4409Q.1 Minimum documentary requirements 4409Q.17 Trust fund of pre-need companies SECTION 4410Q Unit Investment Trust Funds/Common Trust Funds 4410Q.6 Plan rules 4410Q.4 Responsibilities of administration 4406Q. governmentowned or controlled corporation.4 Relationship of trustee with Unit Investment Trust Fund 4410Q.16 Qualification and accreditation of quasi-banks acting as trustee on any mortgage or bond issuance by any municipality.9 Sanctions SECTION 4409Q Trust and Other Fiduciary Business 4409Q.2 Lending and investment disposition 4409Q.2 Establishment of a Unit Investment Trust Fund 4410Q.6 Other applicable regulations on loans and investments 4409Q.7 Operating and accounting methodology 4409Q.9 Allowable investments and valuation xxiv .4406Q.5 Funds awaiting investment or distribution 4409Q.8 (Reserved) 4409Q. officers and staff 4406Q.15 (Reserved) 4409Q.3 Qualifications of committee members. 14 Other related guidelines on valuation of allowable investments Unit Investment Trust Fund administration support Counterparties Foreign currency-denominated Unit Investment Trust Funds Exemptions from statutory and liquidity reserves.1 Basic security deposit 4415Q.10 4410Q.4 Lending and investment disposition 4411Q.5 Transactions requiring prior authority 4411Q. DOSRI SECTION 4411Q Investment Management Activities 4411Q.8 Operating and accounting methodology SECTION 4412Q (Reserved) SECTION 4413Q Required Retained Earnings Appropriation B.3 Commingling of funds 4411Q.7 Ceilings on loans 4411Q. INVESTMENT MANAGEMENT ACTIVITIES SECTION 4414Q Authority to Perform Investment Management 4414Q.1 Prerequisites for engaging in investment management activities 4414Q.13 4410Q.6 Title to securities and other properties 4411Q.2 Pre-operating requirements SECTION 4415Q Security for the Faithful Performance of Investment Management Activities 4415Q.2 Minimum size of each investment management account 4411Q.4 Compliance period.1 Minimum documentary requirements 4411Q. sanctions SECTION 4416Q Organization and Management SECTION 4417Q Non-Investment Management Activities xxv .4410Q. single borrowers limit.2 Eligible securities 4415Q.11 4410Q.3 Valuation of securities and basis of computation of the basic security deposit requirement 4415Q.12 4410Q. beneficiary.5 Pre-qualification requirements for a securities custodian/registry 4441Q.2 Applicability of this regulation 4441Q.2 4426Q.3 Prior Bangko Sentral approval 4441Q.6 Functions and responsibilities of a securities custodian xxvi .3 Internal audit External audit Board action SECTION 4427Q Authority Resulting from Merger or Consolidation SECTION 4428Q Receivership SECTION 4429Q Surrender of Trust or Investment Management License SECTIONS 4430Q .SECTION 4418Q Unsound Practices SECTION 4419Q Conduct of Investment Management Activities SECTION 4420Q Required Retained Earnings Appropriation C.1 To trustor.1 4426Q.4 Application for authority 4441Q.1 Statement of policy 4441Q. principal 4425Q. GENERAL PROVISIONS SECTION 4421Q Books and Records SECTION 4422Q Custody of Assets SECTION 4423Q Fees and Commissions SECTION 4424Q Taxes SECTION 4425Q Reports Required 4425Q.4440Q (Reserved) SECTION 4441Q Securities Custodianship and Securities Registry Operations 4441Q.2 To the Bangko Sentral SECTION 4426Q Audits 4426Q. 4441Q.1 Settlement procedures SECTIONS 4601Q.4598Q (Reserved) SECTION 4599Q General Provision on Sanctions PART SIX .13 Basic security deposit 4441Q.29 Sanctions SECTIONS 4442Q .9 Independence of the registry and custodian 4441Q.11 Confidentiality 4441Q. OTHER OPERATIONS SECTION 4601Q Open Market Operations 4601Q. Coverage SECTION 4502Q Specific Foreign Exchange Activities SECTION 4503Q Separate Department SECTION 4504Q Applicability of Pertinent Bangko Sentral Rules SECTION 4505Q Aggregate Ceiling on Issuance of Guarantees SECTIONS 4506Q .MISCELLANEOUS A.14 Reportorial requirements 4441Q.2 .4498Q (Reserved) SECTION 4499Q Sanctions PART FIVE - FOREIGN EXCHANGE OPERATIONS SECTION 4501Q Authority.4601Q.5 (Reserved) xxvii .10 Registry of scripless securities of the Bureau of the Treasury 4441Q.15 .7 Functions and responsibilities of a securities registry 4441Q.12 Compliance with anti-money laundering laws/ regulations 4441Q.8 Protection of securities of the customer 4441Q.28 (Reserved) 4441Q.4441Q. 16 Documentation 4603Q.25 (Reserved) 4603Q.13 (Reserved) 4603Q.5 Accounting guidelines 4603Q.4603Q.15 Definition of terms 4603Q.6 BSP trading windows and services during public sector holidays SECTION 4602Q Repurchase Agreements with the Bangko Sentral 4602Q.20 Compliance with Anti-Money Laundering rules 4603Q.8 .6 Reporting requirements 4603Q.21 Reporting requirements 4603Q.14 Forward and swap transactions 4603Q.4601Q.2 Transactions between parent and subsidiary 4603Q.4 Minimum documents required 4626Q.3 Management oversight 4626Q.19 Non-deliverable forward contracts with nonresidents 4603Q. roll-overs or non-delivery of FX forward and swap contracts 4603Q.17 Tenor/maturity and settlement 4603Q.7 Sanctions 4603Q.4 Risk management guidelines 4603Q.1 Scope and pre-qualification requirements 4603Q.5 Minimum features of asset-backed securities 4626Q.6 Disclosures 4626Q.1 Definition of terms 4626Q.18 Cancellations.3 Renewals 4603Q.4603Q.2 Authority 4626Q.26 Sanctions SECTION 4604Q Underwriting by Investment Houses SECTIONS 4605Q .1 Reverse repurchase agreements with Bangko Sentral SECTION 4603Q Derivatives 4603Q.22 .4625Q (Reserved) SECTION 4626Q Asset-Backed Securities 4626Q.8 Representations and warranties xxviii .7 Conveyance of assets 4626Q. 1 Definitions SECTION 4655Q Applicability of Rules Governing Universal Banks to Quasi-Banks xxix .20 SECTIONS Third party review Originator and seller Trustee and issuer Servicer Underwriter Guarantor Credit enhancement Clean-up call Prohibited activities Amendment Miscellaneous provision Report to Bangko Sentral 4627Q .12 4626Q.10 4626Q.14 4626Q.13 4626Q.11 4626Q.An Act to Enhance the Mobility of Disabled Persons by Requiring Certain Buildings. Institutions.3 Reclassification of real and other properties owned or acquired as quasi-bank premises 4651Q. SUNDRY PROVISIONS SECTION 4651Q Quasi-Bank Premises and Other Fixed Assets 4651Q.2 (Reserved) 4651Q.19 4626Q.1 Appreciation or increase in book value 4651Q.15 4626Q.4650Q (Reserved) B.4 .8 (Reserved) 4651Q. Establishments and Public Utilities to Install Facilities and Other Devices SECTION 4652Q Annual Fees on Quasi-Banks SECTION 4653Q Payment of Fines and Other Charges 4653Q.1 Guidelines on the imposition of monetary penalties 4653Q.2 Payment of fines 4653Q.9 Batas Pambansa Blg.3 Check/demand draft payments to the Bangko Sentral SECTION 4654Q Examination by the Bangko Sentral 4654Q.4626Q. 344 .16 4626Q.9 4626Q.17 4626Q.18 4626Q.4651Q. 5 (Reserved) 4659Q. Ltd.8 (Reserved) 4691Q.1 Statement of policy 4657Q.6 Recognition of Fitch Singapore Pte.3 Pre-qualification requirements 4657Q.9 Sanctions and penalties SECTIONS 4692Q .1.2 Minimum eligibility criteria 4657Q.4690Q (Reserved) SECTION 4691Q Anti-Money Laundering Regulations 4691Q.5 Derecognition of credit rating agencies 4657Q.4694Q (Reserved) SECTION 4695Q Valid Identification (ID) Cards for Financial Transactions SECTIONS 4696Q .4659Q.4698Q (Reserved) SECTION 4699Q General Provision on Sanctions xxx .4691Q.. as international credit rating agency for bank supervisory purposes SECTION 4660Q Disclosure of Remittance Charges and Other Relevant Information SECTION 4661Q Examination by the BSP SECTIONS 4662Q .1 .6 Recognition of PhilRatings as domestic credit rating agency for bank supervisory purposes SECTION 4658Q (Reserved) SECTION 4659Q Internationally Accepted Credit Rating Agencies 4659Q.4 Inclusion in BSP list 4657Q.SECTION 4656Q Basic Laws Governing Investment Houses and Financing Companies SECTION 4657Q Recognition and Derecognition of Domestic Credit Rating Agencies for Quasi-Bank Supervisory Purposes 4657Q. SUBJECT MATTER Q-1 Guidelines to Evaluate Investment Houses Q-2 Determination of Amount of Additional Capital the Entity Must Put Up Q-3 List of Reports Required from Quasi-Banks Annex Q-3-a .12.31 LIST OF APPENDICES No.(Reserved) Annex Q-3-c .10 Guidelines in Identifying and Monitoring Problem Loans and Other Risk Assets and Setting Up of Allowance for Probable Losses Q .Information on One-Year Borrowing-Investment Program to be Submitted by Quasi-Banks Annex Q-3-b .List of Appendices 08.Format of Resolution for Signatories of Category A-1 Reports Annex Q-4-b .Guidelines on Calculating Additional Information Required in Published Statement of Condition Q-4 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex Q-4-a .Format of Resolution for Signatories of Category A-2 Reports Q-5 Minimum Internal Control Standards for Quasi-Banks Q-6 Standardized Deposit Substitute Instruments Q-7 New Rules on Registration of Short-Term Commercial Papers Q-8 New Rules on the Registration of Long-Term Commercial Papers Q-9 List of Reserve .Documentary Requirements on Directors/Officers/ Major Individual Stockholders Annex Q-3-e .Documents/Information on Organizational Structure and Operational Policies Annex Q-3-f .Page 1 .Reporting Guidelines on Crimes/Losses Annex Q-3-d .Eligible and Non-Eligible Securities Q .11 Format-Disclosure Statement of Loan/Credit Transaction Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendices . 19 New Rules and Regulations to Implement the Provisions of R. Accounting Procedures. SUBJECT MATTER Q .14 Sample Investment Management Agreement Q . 5980 (The Financing Company Act). as Amended Q .22 Pro-forma Payment Form Q .15 Risk Management Guidelines for Derivatives Q .17 Accounting Guidelines for Derivatives Q . A.18 SEC Basic Rules and Regulations to Implement the Provisions of Presidential Decree No.List of Appendices 08. Valuation and Sales and Transfers of Investments in Debt Securities and Marketable Equity Securities Q-20-a Establishing the Market Benchmarks/Reference Prices and Computation Method Used to Mark-to-Market Debt and Marketable Equity Securities Q .12. 129. 3765) Q .23 Anti-Money Laundering Regulations Q Regulations Appendices . No.20 Classification. Otherwise Known as "The Investment Houses Law" Q .16 Risk Disclosure Statement for Derivatives Activities Q .12 Abstract of "Truth in Lending Act" (Republic Act No.Page 2 Manual of Regulations for Non-Bank Financial Institutions .13 Agreement for the Enhanced Interbank Call Loan Funds Transfer System Q-13-a Settlement Procedures for Interbank Loan Transactions and Purchase and Sale of Government Securities under Repurchase Agreements with the Bangko Sentral Q-13-b Enhanced Intraday Liquidity Facility Q .31 No.21 Guidelines on the Use of Scripless (RoSS) Securities as Security Deposit for the Faithful Performance of Trust Duties Q . List of Appendices 08.12. also known as the "Special Purpose Vehicle Act". 9343 Q . SUBJECT MATTER Annex Q-23-a Annex Q-23-b Annex Q-23-c Annex Q-23-c-1 Annex Q-23-d Annex Q-23-e Certification of Compliance with Anti-Money Laundering Regulations Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions Customer Due Diligence for Banks and Quasi-Banks General Identification Requirements General Guide to Account Opening and Customer Identification AMLC Resolution No. 9182.R.27 Details on the Computation of Quarterly Interest Payments Credited to the Demand Deposit Accounts (DDAs) of Quasi-Banks' Legal Reserve Deposits with BSP Q .26 Investment Houses and Financing Companies (IH/FC) with QuasiBanking Functions . No. as Amended by R.Reverse Repurchase Agreements with BSP Proforma Accounting Entries Q . 9160.28 Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle or to an Individual Q-28-a Accounting Guidelines on the Sale of Non-Performing Assets to Special Purpose Vehicles and to Qualified Individuals for Housing Under "The Special Purpose Vehicle (SPV) Act of 2002" Annex Q-28-a-1 Illustrative Accounting Entries to Record Sale of NPAs to SPV under the SPV Law of 2002 Annex Q-28-a-2 Pro-Forma Disclosure Requirement Q . No. 02 Series of 2005 Q . No.25 Revised Implementing Rules and Regulations .A.Page 3 . 9194 Q . as Amended by R.28-b Significant Timelines Relative to the Implementation of R.A.A.29 Guidelines and Minimum Documentary Requirements for Foreign Exchange (FX) Forward and Swap Transactions Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendices .A.24 Activities Which May Be Considered Unsafe and Unsound Practices Q . No.31 No. Page 4 Manual of Regulations for Non-Bank Financial Institutions . SUBJECT MATTER Q . Directors and/or Officers Q Regulations Appendices .36 Format Certification Annex Q-36a Format Certification Q . Government-Owned or Controlled Corporation.A. No.31 Qualifications Requirements for a Bank/NBFI Applying for Accreditation to Act as Trustee on any Mortgage or Bond Issued by any Municipality.31 No. Appointment and the Reporting Requirement for External Auditors of Quasi-Banks Q .List of Appendices 08.32 Rules and Regulations on Common Trust Funds Q .38 Implementation of the Delivery by the Seller of Securities to the Buyer or to his Designated Third Party Custodian Annex A Template of Letter to Investor Q-38-a Disposition of Compliance Issues on Appendix Q-38 Q-38-b Delivery of Government Securities to the Investor's Principal Securities Account with the Registry of Scripless Securities Annex A Memorandum of Argeement Annex B Investor's Undertaking Q .37 Duties and Responsibilities of Banks and their Directors/Officers in All Cases of Outsourcing of Banking Functions Q . Annual Audit Report (AAR) and Reports Required Under Appendix Q-30 Annex A Pro-Forma Comparative Analysis Q .33 Checklist of BSP Requirements in the Submission of Financial Audit Report (FAR).35 BSP Rules of Procedure on Administrative Cases Involving Directors and Officers of Quasi-banks and Trust Entities Q . or any Body Politic Q . 7653 on Quasi-banks.12.39 The Guidelines for the Imposition of Monetary Penalty for Violations/ Offenses with Sanctions Falling Under Section 37 of R.30 Guidelines to Govern the Selection.34 Quarterly Investment Disclosure Statement Q-34-a Unit Investment Trust Funds Risk Disclosure Statement Q . 44 Guidelines on Liquidity Risk Management Q .43 Guidelines on Market Risk Management Q .12.41 Guidelines for the Change in the Mode of Compliance with the Liquidity Reserve Requirement Annex A .42 Guidelines on Supervision by Risk Q .40 Prompt Corrective Action Framework Q .List of Appendices 08.Page 5 .Debit/Credit Authority Format Q . SUBJECT MATTER Annex A - Aggravating and Mitigating Factors to be Considered in the Imposition of Penalty Q .45 Authorization Form for Querying the BSP Watchlist Files for Screening Applicants and Confirming Appointments of Directors and Officials Q .47 Guidelines for Trust Departments' Placements in the SDA Facility of the BSP Annex 1 Letter of Request Annex 2 Sample Confirmation Q-47a SDA Placements of Trust Departments/Entities as Agent for Tax-Exempt Institutions (TEI) and Accounts Annex 1 Certification Q .48 Basic Standards in the Administration of Trust. Other Fiduciary and Investment Management Accounts Q .46 Risk-based Capital Adequacy Framework for the Philippine Banking System Q-46a Guidelines on the Capital Treatment of Banks' Holdings of ROP Global Bonds Paired with Warrants Q-46b Guidelines on the Use of the Standardized Approach in Computing the Capital Charge for Operational Risks Q .49 Guidelines for Days Declared as Public Sector Holidays Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendices .31 No. Regularly engaged in lending shall refer to the practice of extending loans.e. Borrowing funds for the borrower's own account. Purpose: (1) relending. from domestic or foreign sources. § 4101Q. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . Principal shall mean chief. (4) certificates of assignment or similar instruments with recourse. including interbank borrowings or borrowings between financial institutions. Relending shall be presumed in the absence of express stipulation. (3) participations. leading. or (2) purchasing receivables or other obligations. Functions shall mean actions. as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in c and d above. b. Methods of borrowing: issuance. of first importance. most considerable or important.1 Financial intermediaries Financial intermediaries shall mean persons or entities whose principal functions include the lending. or of securities. or acceptance of debt instruments of any kind. i. dominant or preponderant. (5) trust certificates. c. activities or operations of a person or entity by which his/its business or purpose is fulfilled or carried out. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. primary. of another. acquired by them. (2) promissory notes. continuous or consistent lending as distinguished from isolated lending transactions. For the borrower's own account shall refer to the assumption of liability in one's own capacity and not in representation. and (7) such other instruments as the Monetary Board may determine. discounts or rediscounts as a matter of business.4101Q. such as: (1) acceptances. as distinguished from secondary or incidental. and from the nature of the business indicated in his/its application for registration of business filed with the appropriate government agency.. endorsement.31 PART ONE ORGANIZATION. foremost. SCOPE OF AUTHORITY Section 4101Q Quasi-Banking Functions Quasi-banking functions consist of the following: a. when the institution is regularly engaged in lending. the following terms and phrases shall be understood. MANAGEMENT AND ADMINISTRATION A. or otherwise coursed through them either for their own account or for the account of others. As used in the definition of quasibanking functions. of any amount and maturity. and d. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money.§§ 4101Q . investing or placement of funds or evidences of indebtedness or equity deposited with them. (6) repurchase agreements. Twenty (20) or more lenders at any one time.1 05.12. whether the borrower's liability thereby is treated as real or contingent. main. advances. The business or purpose of a person or entity may be determined from the purpose clause in its articles of incorporation/partnership.Page 1 . or as an agent or trustee. other than deposits. cooperative. irrespective of number. That a debt instrument issued in the name of a husband and wife followed by the word spouses. mortgages. and commercial papers. d. insurance company. but need not be limited to. Manual of Regulations for Non-Bank Financial Institutions . bills of exchange. lending investor. In such case the actual/real lenders/ placers as appearing in such proof. fees. interest. shall be counted as one (1) borrowing/placement. commissions. finance. Use principally the funds received for acquiring various types of debt or equity securities.31 To be considered a financial intermediary. c. financing company. (3) A person or entity performing any of the functions enumerated in Items a to e of this Subsection. or issuance of debt or equity securities.2 05. such as investment house. investment company. such as by the use of a business name. b. bonds. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement. which includes the term financing. a person or entity must perform any of the following functions on a regular and recurring. or lend on. For purposes of ascertaining the number of lenders/placers to determine whether or not a non-bank financial intermediary is engaged in quasi-banking functions.Page 2 which connotes financial intermediation. and make available/lend these funds to another person or entity. Hold assets consisting principally of debt or equity securities such as promissory notes. shall be the basis for counting the number of lenders/placers.1 . or buy or sell debt or equity securities. Receive funds from one (1) group of persons. and in the process acquire debt or equity securities. fund manager. or an entity which advertises itself as a financial intermediary and is engaged in the function(s) where financial intermediation is implied. b. e. the number of payees appearing on the instrument shall be the basis for counting the number of lenders/ placers: Provided.2 Guidelines on lender count. Borrow against. § 4101Q. Realize regular income in the nature of. non-stock savings and loan association and building and loan association.§§ 4101Q. Each debt instrument payable to bearer shall be counted as one (1) lender/ placer except when the non-bank financial intermediary can prove that there is only one (1) owner for several debt instruments so payable. discounts. not on an isolated basis: a. stocks. securities dealer/broker. through traditional deposits. however. principally from transactions in debt or equity securities or by being an intermediary between suppliers and users of funds.4101Q. capital gains. Non-banking financial intermediaries shall include the following: (1) A person or entity licensed and/ or registered with any government regulatory body as a non-bank financial intermediary. guarantees. and service fees. money broker. (2) A person or entity which holds itself out as a non-banking financial intermediary. pawnshop. the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/ placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. and/or or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement. underwriting fees.12. whether under an and. The following guidelines shall govern lender count on borrowings or funds mobilized by non-bank financial intermediaries: a. lending and/or any word/phrase of similar import Q Regulations Part I . investment. as well as on the confirmation of sale. 4101Q for the limited purpose of financing their own needs or the needs of their agents or dealers. further.12. through the means listed in Sec. (2) In the absence of the phrase without recourse or sans recourse and the above-required accompanying statement. and/or indorsement thereof legally obligates the non-bank financial intermediary to repurchase or reacquire the securities/receivables sold. standby or best efforts basis shall be counted on the basis of the number of purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided. The mere buying and selling without recourse of instruments mentioned in Sec.3 Transactions not considered quasi-banking. Borrowing by commercial. That any of the following practices or practices similar and/ or tantamount thereto in connection with a without recourse transaction renders such transaction as with recourse and within the purview of the rules on quasi-banking. unless the financial intermediary can show that the issuer has with the said financial intermediary funds corresponding to the amount of the obligation. assignee. or receivables on a without recourse basis. Any investment house violating the provisions of this Subsection shall be subject to the sanctions provided in Sections 12 and 16 of P. f. d. officers. or circumstances indicate that the sale. directors or officers shall be counted in determining the number of lenders/placers. § 4101Q. practice. 129.2 . whenever the terms and/or attendant documentation. the underwriter shall be counted as a lender. (ii) Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignment of debt instruments without recourse. e. Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm. That in case of unsold debt instruments in a firm commitment underwriting.§§ 4101Q. assigned or transferred without recourse. shall be considered borrowed funds or funds mobilized and such stockholders. sold or transferred the debt instrument without recourse. Provided. regardless of nature. assignment. or indorsee at some subsequent time.D. industrial and other non-financial companies. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . directly or indirectly. assignment. and b. assigned. the phrase without recourse or sans recourse and the following statement: (Name of financial intermediary) assumes no liability for the payment. 4101Q: Provided. assignee. in payment of the debt instrument sold. The following shall not constitute quasi-banking: a. That: (1) The institution selling without recourse shall indicate or stamp in conspicuous print on the instrument/s. as amended. endorsed or accepted shall automatically be considered as falling within the purview of the rules on quasi-banking. the instrument so issued.3 05. however. and/ or indorsement of securities. or (iii) Payment with the funds of the financial intermediary which assigned.31 c. irrespective of the date and amount shall be counted as one (1) borrowing or placement.4101Q. whether for its own account or as an agent of the debt instrument issuer. No. of this instrument. indorsed or to pay the buyer. and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale. (i) Issuance of postdated checks by a financial intermediary. Two (2) or more debt instruments issued to the same payee. directors.Page 3 . Funds obtained by way of advances from stockholders. Each buyer. (2) Suspension or revocation of the authority to act as securities custodian and/ or registry. and ----------------------------------------------------------------------------1 Effective 16 November 2004 under Circular 450 dated 06 September 2004.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected.3(b) shall be delivered physically to the purchaser. and (2) Reprimand for the directors/officers responsible for the violation. Subsequent offense – (a) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. (2) Other sanctions First offense – Reprimand for the directors/ officers responsible for the violation. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37.A. if immobilized or dematerialized. Subsequent offenses – Fine of P20. its subsidiaries or affiliates. or of securities in bearer form. (b) Suspension or revocation of the accreditation to perform custodianship function. That a QB/ other entity authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said NBFI.4 Delivery of securities1 a. 4101Q.000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected.12. and/or (d) Suspension or revocation of the authority to engage in trust and other fiduciary business. or by means of book-entry transfer to the appropriate securities account of the purchaser or his designated BSP accredited custodian in a registry for said securities. if certificated. (c) Suspension or revocation of the authority to engage in quasi-banking function. (c) Subsequent offenses– (1) Fine of up to P30.000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected. respectively of R.000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected.4 07. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by the authorized officer of the custodian and delivered to the purchaser. Sanctions. while the confirmation of sale or document of conveyance by the seller shall be physically delivered to the purchaser. b.31 § 4101Q. Securities sold on a without recourse basis allowed under Subsec. Violation of any provision of this Subsection shall be subject to the following sanctions/penalties: (1) Monetary penalties First offense – Fine of P10.Page 4 Manual of Regulations for Non-Bank Financial Institutions . and (2) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. The custodian shall hold the securities in the name of the buyer: Provided. The guidelines to implement the delivery by the seller of securities to the buyer or to his designated third party custodian are shown in Appendix Q-38. Sanctions.§ 4101Q. violation of any provision of the guidelines in Appendix Q38 shall be subject to the following sanctions/penalties depending on the gravity of the offense: (a) First offense – (1) Fine of up to P10. Q Regulations Part I . or to his designated custodian duly accredited by the BSP. No. (b) Second offense (1) Fine of up to P20. 7653 (The New Central Bank Act). or to his designated custodian duly accredited by the BSP: Provided. § 4101Q.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. its subsidiaries or affiliates.6 Sale. 457 dated 14 October 2004).A.000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected. (3) Subsequent Offenses – (a) Fine of up to P30. banks and other FIs under BSP supervision may maintain custody of existing securities of their clients who are unable or unwilling to take delivery pursuant to the provisions of this Subsection but who declined to deliver their existing securities to a BSP accredited third party custodian subject to the following conditions: (1) the custody arrangements with clients have been in existence prior to 05 November 2004 (effectivity date of Circular No. and (b) Reprimand for the directors/ officers responsible for the violation.31 (3) Suspension for 120 days without pay of the directors/officers responsible for the violation.12. (b) Suspension or revocation of the authority to act as securities custodian and/ or registry.Page 5 . No. Securities sold on a without recourse basis shall be delivered to the purchaser. b. 7653. and (b) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. respectively. of R. must therefore. or of securities in bearer form. and (4) it shall be the responsibility of any BSP regulated institution to satisfy itself that the person purchasing securities from it has no outstanding securities holdings which were not delivered to a BSP accredited third party custodian. (As amended by M-2007-002 dated 23 January 2007. Sanctions. violation of any provision of this Subsection shall be subject to the following sanctions/ penalties: (1) First Offense – (a) Fine of up to P10. discounting. That a bank/other entity authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said QB/entity.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected.4 .5 Securities custodianship operations a. Existing securities being held under custodianship by QB/other entities under BSP supervision. which are not in accordance with said regulation. However. (2) Second Offense (a) Fine of up to P20. (3) any BSP regulated institution shall not enter into securities transactions with a client who has outstanding securities not delivered to a BSP accredited third party custodian.6 08.§§ 4101Q.4101Q. M-2006-009 dated 18 July 2006. assignment or negotiation by QBs of their credit rights arising from claims against the Bangko Sentral to clients. M-2006-002 dated 05 June 2006 and Circular No. be delivered to a BSP accredited third party custodian. (2) the dealing bank/NBFI under BSP supervision had been informed in writing by the client that he is not willing to have his existing securities delivered to a third party custodian. 524 dated 31 March 2006) § 4101Q. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37. Pursuant to the policy of the BSP to promote investor protection and transparency in securities Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . and (c) Suspension for 120 days without pay of the directors/officers responsible for the violation. 4102Q Statement of Policy. efficient and inclusive financial system fully supportive of sustainable economic growth. and c. in the case of investment houses. (Circular No. where applicable. block sales.6 . the grant of authority to engage in quasi-banking functions to investment houses and finance companies shall be allowed subject to the following conditions: a. e. and discounting or factoring commercial papers or accounts receivable. That quasi-banking activities shall be undertaken by the institution concerned to pursue its core business. e. b.1 08.0 million or such amounts as may be required by the Monetary Board in the future. including the Monetary Board and/or BSP Management where applicable. that pre-termination thereof is subject to penalty. credit rights in Special Deposit Account (SDA) placements and reverse repo agreements with the BSP.. or by leasing of motor vehicles. (Circular No. underwriting of securities of other corporations and of the government or its instrumentalities. leases. and such other material risks involved in investing in such instrument.1 Preconditions for the exercise of quasi-banking functions. 4199Q. b. An institution securing BSP authority to engage in quasi-banking functions must meet the following requirements: a.g. It has generally complied with applicable laws. Only a duly incorporated investment house and finance company may undertake or perform quasi-banking functions as defined in Section 4101Q. that it is not covered by the Philippine Deposit Insurance Corporation (PDIC). rules and regulations. rights or warrants relating to securities and such other powers which a dealer may exercise under the Securities Regulation Code (SRC). Manual of Regulations for Non-Bank Financial Institutions . d.§§ 4101Q. heavy equipment and industrial machinery. or other evidences of indebtedness. Its accounting records. and dealing in options. participating as soliciting dealer or selling group member in tender offers.Page 6 §4102Q. i.. chattel mortgages (CHMs). Towards this end. That the institution concerned shall fully inform investors of the nature of a deposit substitute instrument.12. appliances and other movable property. systems and procedures as well as internal control systems are satisfactorily maintained. in the case of finance companies. 557 dated 12 January 2007) Sec. It is the policy of the BSP to promote the development of the domestic financial market so as to foster a sound. It has no past due obligation with any FI as of date of application. or exchange offering of securities.4102Q. business and office machines and equipment. It does not have float items outstanding for more than sixty (60) calendar days in the “Due From/To Head Office/Branches/Offices” accounts exceeding one percent (1%) of the total resources as of end of preceding month. or by buying and selling contracts. orders or instructions of appropriate authority. assignment or negotiation on a with or without recourse basis.31 transactions as important components of capital markets development. 636 dated 17 December 2008) consumer loans. or granting business and Q Regulations Part I . No person or entity shall engage in quasi-banking functions without authority from the BSP. That the institution concerned shall conduct effective investor suitability testing procedures. It must have complied with the minimum adjusted capital accounts of at least P300.e. c. Any violation of the provisions of this Subsection shall be considered a less serious offense and shall subject the QB and the director/s and/or officer/s concerned to the sanctions provided under Sec. discounting. shall not be the subject of sale. (f) leasing. appropriately structured risk limits. The officers who will be in-charge of the quasi-banking operations have actual experience of at least two (2) years in a bank or QB as in-charge (or at least as assistant-in-charge). See SEC Circular Nos. Bio-data signed under oath. and (g) direct loans. and (4) investors shall be subjected to effective investor suitability testing procedures.12. h. The application shall be signed by the president or officer of equivalent rank of the institution and shall be accompanied by the following documents: 1 a.Page 7 . in the case of investment houses. i. as well as all other material risks. (3) investors shall be informed that their investments/placements are not insured by the PDIC and that any pre-termination thereof shall be subject to penalty. g. An institution securing BSP’s Certificate of Authority to engage in quasi-banking functions shall file an application with the appropriate department of the SES. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .. (2) quasi-banking functions shall be pursued/undertaken by the institution in the furtherance of its core business. It has not engaged in unsafe and unsound practices during the past six (6) months immediately preceding the date of application where applicable. (As amended by Circular No.g. c. b. 3 dated 16 February 2006 and 14 dated 24 October 2000. and e. e. officer-in-charge of the quasi-banking operations and the managerial staff must comply with the fit and proper rule prescribed under existing law/rules and regulations. adequate risk measurement systems. effective internal control and complete. 5 dated 17 July 2008. and leasing and/or discounting/factoring commercial papers or accounts receivable. if applicable. which should include at the minimum: (1) planned distribution of portfolios as to: (a) underwriting. (e) receivables financing. 557 dated 12 January 2007) Sec.4103Q 08. The directors of the institution. discounting and factoring. Certified true copy of the resolution of the board of directors of the institution authorizing the application.1 . (b) commercial papers. A certification signed by the president or officer of equivalent rank that: (1) the institution has complied with all conditions/prerequisites for the grant of authority to engage in quasi-banking functions.31 f. 4103Q Certificate of Authority from the Bangko Sentral1. in the case of finance companies. An information sheet. and annually thereafter on or before November 30. (c) stocks and bonds. The institution has elected at least two (2) independent directors and all its directors have attended the required seminar for directors of QBs conducted or accredited by the BSP. It must have in place a comprehensive risk management system approved by its board of directors appropriate to its operations characterized by a clear delineation of responsibility for risk management. or granting business and consumer loans. of the members of the managerial staff who will undertake quasi-banking operations. underwriting of and dealing in securities of other corporations and of the government or its instrumentalities. In this connection. a manual of operations and other related documents embodying the risk management system must be submitted to the appropriate department of the SES at the time of application for authority and within thirty (30) days from updates. timely and efficient risk reporting systems. d. Borrowing-investment program for one (1) year.§§ 4102Q. (d) government securities. 4104Q Bangko Sentral Certificate of Authority. to directors.0 million. 4105Q Licensing of an Investment House. With respect to Item “b” hereof. That this may be substituted by a capital build-up program for a period of not more than three (3) years which must be approved by the Monetary Board. In the case of a merger or consolidation of two (2) or more QBs. the provisions of Sec.D. net of (a) such unbooked valuation reserves and other capital adjustments as may be required by the BSP. 4102Q and 4103Q and of pertinent laws and regulations. CL-2008-053 dated 21 August 2008. (As amended by CL-2008-078 dated 15 December 2008.1(a): Provided. 4356Q. and shall be submitted to the appropriate department of the SES within three (3) months from 03 February 2007. CL-2008-007 dated 05 February 2008 and Circular No. Such capital build-up program shall be in equal annual or diminishing amounts. both direct and indirect.31 (2) expected sources of funds to support investment program classified as to: (a) maturity: short. No. (b) interest rates. Investment houses and finance companies authorized to engage and are actually performing quasi-banking functions but do not meet the new capital requirement are hereby given a period of two (2) years reckoned from 03 February 2007 within which to comply with the minimum capital requirement in Subsec. Transitory provisions. other credit accommodations and guarantees granted to subsidiaries and affiliates.1. the authority shall continue to have full force and effect. 129 shall be evaluated in accordance with the Guidelines to Evaluate Investment Houses prescribed in Appendix Q-1. QBs which fail to comply with the required capitalization upon expiration of said two (2) year period given them or those which fail to comply with the approved capital build-up program shall liquidate their quasi-banking operations within one (1) year from said deadlines and their licenses shall be considered revoked/cancelled. individually and/or together Manual of Regulations for Non-Bank Financial Institutions . Sec. A QB shall have a minimum combined capital accounts of P300. medium and long-term. B. The Certificate of Authority of the absorbed corporation in a merger and the certificates of the consolidated corporations in a consolidation shall be surrendered to the appropriate department of the BSP.4106Q 08.1(a) on 03 February 2007 shall be automatically revoked.12. a new certificate shall be issued to the new corporation. The BSP shall issue a Certificate of Authority upon proof that the applicant has complied with the Q Regulations Part I .Page 8 requirements of Secs. Combined capital accounts shall mean the total of capital stock. Applications for license as an investment house referred to the BSP by the Securities and Exchange Commission (SEC) pursuant to P. 557 dated 12 January 2007) Sec.§§ 4103Q . all stockholders and their related interests (DOSRI) and. and (c) domestic or foreign sources whether institutional or personal. and with respect to consolidation. 4102Q. the Certificate of Authority of the absorbing corporation shall be maintained. (c) unsecured loans. in the case of a merger. The foregoing requirement shall also apply to QBs existing as of 03 February 2007. officers. The licenses of existing QBs not actually performing quasi-banking functions which do not meet the required minimum capitalization provided in Subsec. For documentation purposes. 4106Q Minimum Capitalization. 4102Q. CAPITALIZATION Sec. 4356Q shall apply except that in the definition of stockholders in Subsec. (b) total outstanding unsecured credit accommodations. the qualification that his stockholdings. retained earnings and profit and loss summary. The minimum paid-in capital requirement for an investment house shall (Next Page is Part I .12. 4107Q Minimum Capital of Investment House.§§ 4106Q . shall not apply for purposes of this Item. Any appraisal surplus or appreciation credit as a result of appreciation or an increase in book value of the assets of the QB shall be excluded.4107Q 07.31 with his related interests in the lending QB.Page 8a . amount to ten percent (10%) or more of the total subscribed capital stock of the QB. where the appraisal increment resulting from the revaluation shall form part of capital for purposes of determining single borrower’s limit and capital-to-risk assets ratio. Any foreign equity shall be registered with and approved by the Board of Investments and the appropriate department of the BSP.Page 9) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . 560 dated 31 January 2007) Sec. (As amended by Circular No. except in the case of merger and consolidation. The merger/ consolidation of QBs is encouraged to meet minimum capital requirements and to develop larger and stronger FIs. and (7) Other sanctions as may be imposed by the Monetary Board. 8366.§§ 4107Q . Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . 4108Q Sanctions. privileges. which retains its identity and takes over the rights. 4111Q Merger/Consolidation Involving Quasi-Banks. constituent entities may. That such revaluation shall be based on fair valuation of the property conducted by a reputable appraisal company which shall be subject to review and approval by the BSP. For purposes of merger and consolidation of QBs. (6) Suspension of the privilege to establish and/or open approved branches. (5) Prohibition against declaration of cash dividends. Mergers/consolidations involving QBs shall comply with the provisions of applicable law and shall be subject to approval by the BSP. In pursuance of the policy to promote mergers and consolidations among banks and other financial intermediaries as a means to develop larger and stronger FIs. The consolidated corporation shall thereupon and thereafter possess all the rights.4112Q 05.31 be P300 million pursuant to R.A. 129. 4112Q Merger/Consolidation Incentives. QBs which are investment houses are likewise encouraged to merge with banks to obtain authority to perform expanded commercial banking functions. improvements and equipment of the institutions: Provided. called the consolidated corporation. franchises. etc. (4) No new/renewal/extension of credit accommodations to DOSRI. b. Sec.. Merger is the absorption of one (1) or more corporations by another existing corporation. MERGER/CONSOLIDATION Sec. Any or all of the following sanctions may be imposed on any QB which fails to maintain at least the applicable minimum capital under Secs. Secs. and assumes all the liabilities and obligations of the absorbed corporation(s) in the same manner as if it had itself incurred such liabilities or obligations. avail themselves of any or all of the following incentives: a. as amended by R. The absorbing corporation continues its existence while the life or lives of the other corporation(s) is/are terminated. The following rules shall govern the revaluation of assets: (1) The revaluation of the QB ’s premises. Revaluation of premises. No.Page 9 .4110Q (Reserved) C.A. privileges.12. Sec. immunities. Consolidation is the union of two (2) or more corporations into a single new corporation. 4109Q . subject to BSP approval. offices. (2) Suspension of authority to engage in trust/investment management activities (in the case of an investment house). the following definitions shall apply: a. No. and assume all the liabilities and obligations of each of the constituent corporations in the same manner as if it had itself incurred such liabilities or obligations. (3) Cease-and-desist order (in the case of an investment house). agencies. 4106Q and 4107Q: (1) Suspension of authority to engage in quasi-banking functions. and properties. all the constituent corporations thereby ceasing to exist as separate entities. or at least two (2) of them belong to the highest category among the merging/consolidating institutions. franchises and properties. improvements and equipment shall be allowed only to all institutions participating in a merger/consolidation if all of them belong to the same category. Q Regulations Part I . the Monetary Board may. Otherwise. at its discretion.§ 4112Q 05. (3) The appraisal increment resulting from the revaluation shall form part of capital for purposes of determining the single borrower’s limit and capital-to-risk assets ratio. and equipment of the institution as well as the recognition of goodwill as an incentive to mergers/ consolidations shall only be allowed if the following conditions are met: (i) The surviving or consolidated entity will meet the existing capital requirements after all adjustments are taken up in the books of accounts of the merging/consolidating entities but before considering appraisal increments and goodwill.31 (2) In case the merging/consolidating institutions do not belong to the same category or only one (1) of them falls under the highest category. That the amount of appraisal increment resulting from such revaluation shall be limited to the amount of the total resources of the institution belonging to the lower category or categories. improvements. only the QB being acquired/rehabilitated shall be allowed to Manual of Regulations for Non-Bank Financial Institutions . c. (2) In case the merging/consolidating institutions do not belong to the same category or only one (1) of them falls under the highest category. the same conditions must be satisfied. In the case of purchase or acquisition of majority or all of the outstanding shares of a QB by a bank/another QB. (4) The revaluation of premises. and (ii) The merger/consolidation will result in a more viable FI as a result of cost savings and improve competitive position. That the revaluation of assets and staggered booking of reserves shall be allowed in full only if the purchaser is another QB and both the QBs belong to the same category. If by reason of merger/ consolidation. Unbooked valuation reserves based upon BSP examination and other capital adjustments resulting from the merger/ consolidation may be booked on staggered basis over a maximum period of five (5) years. That the aggregate amount of the required valuation reserves shall be limited to the amount of the total resources of the institution belonging to the lower category or categories. temporarily relieve the QB from full compliance with this requirement under such conditions as it may prescribe. b. the revaluation of assets and the booking of the required valuation reserves based upon examination by the BSP over a period of five (5) years shall be allowed only if such purchase or acquisition is for the purpose of rehabilitating the former QB: Provided. or at least two (2) of them belong to the highest category among the merging/consolidating institutions. The use of appraisal increment for cash dividend shall be governed by the provisions of the Corporation Code. the resulting QB is unable to comply fully with the prescribed net worth-to-risk assets ratio. all of them may be allowed to book the required valuation reserves based upon examination by the BSP on a staggered basis over a maximum period of five (5) years: Provided.12. or there will be infusion of fresh capital to meet said existing capital requirements. In case of purchase or acquisition of the majority or all of the outstanding shares of stock of a QB.Page 10 The following guidelines shall govern the staggered booking of valuation reserves: (1) The booking on staggered basis over a maximum period of five (5) years of unbooked valuation reserves based upon examination by the BSP may be allowed to all institutions participating in a merger/ consolidation if all of them belong to the same category. improvements and equipment: Provided. all of them may be allowed to revalue their premises. expressed as a percentage of qualifying capital to risk-weighted assets. shall not be less than ten percent (10%) for both solo basis (head office plus branches) and consolidated basis (parent QB plus subsidiary financial allied undertakings.4115Q (Reserved) D. but excluding insurance companies). Circular Nos. the appraisal increment resulting from revaluation of assets and the privilege of staggered booking of valuation reserves shall each be limited to the amount of the total resources of the QB being acquired/rehabilitated. Secs. This shall be effective 1 January 2004. The qualifying capital shall be the sum of – a. 2005) f.1 07. The foregoing incentives may also be granted in cases of purchases or acquisitions of majority or all of the outstanding shares of stock of a QB. The guidelines implementing the revised riskbased capital adequacy framework for the Philippine banking system to conform to Basel II recommendations is provided in Appendix Q-46b. Any right or privilege granted a merging bank under a rehabilitation program previously approved by the Monetary Board or under any special authority previously granted by the Monetary Board shall continue to be in effect. while in the case of the acquiring bank/QB. Subject to approval of the Monetary Board. (2) Paid-up perpetual and noncumulative preferred stock. These guidelines apply to all UBs and KBs.Page 11 . h. i. Outstanding penalties in legal reserve deficiencies and interest on overdrafts with the BSP as of the date of merger/consolidation may be paid in installments over a period of one (1) year. 588 dated 11 December 2007. The ratio shall be maintained daily. branches and/or other offices of the merged/absorbed institutions into branches of the new or surviving FI. (Deleted by Cir. as well as their subsidiary banks and QBs.12. as provided below as well as Subsecs. Restructuring/plan of payment of past due obligations of the proponents with the BSP as of the date of merger/consolidation over a period not exceeding ten (10) years. QBs that are not subsidiaries of UBs or KBs shall continue to be subject to the riskbased capital adequacy framework. concurrent officerships between a merged/consolidated bank/FI and another bank/FI may be allowed. 4116Q. and j. 560 dated 31 January 2007 and 538 dated 04 August 2006) § 4116Q. 4112Q shall be available for a period of three (3) years from 31 August 1998. or in such other cases/circumstances as the Monetary Board may prescribe.1 Qualifying capital. d. RISK-BASED CAPITAL ADEQUACY RATIO Sec. g. M-2007-019 dated 21 June 2007. Conversion or upgrading of the existing head offices. (3) Common stock dividends distributable. 494 dated 20 Sept.1 to 4116Q. The risk-based capital ratio of a QB. Relocation of branches/offices may be allowed within one (1) year from date of merger/consolidation in cases where the merger/consolidation resulted in duplication of branches/offices in a service area.4116Q. 4116Q Minimum Ratio. The revaluation of assets and staggered booking of valuation reserves shall be available for a period of two (2) years from 19 February 1999 while the rest of the incentives enumerated under Sec.6. Tier 1 (core) capital (1) Paid-up common stock.§§ 4112Q . e. 4113Q . (As amended by Circular No. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .31 recognize in full the appraisal increment resulting from revaluation of assets and to book valuation reserves on a staggered basis. and (8) Minority interest in the equity of subsidiary financial allied undertakings which are less than wholly-owned: Provided. (e) Total outstanding unsecured credit accommodations. (6) Surplus reserves. subject to the following conditions: (i) It must not be secured nor covered by a guarantee of the issuer or related party. in effect.12. Subordinated creditors must waive their right to set off any amounts they owe the QB against subordinated amounts owed to them by the QB. to DOSRI. (f) With prior BSP approval. (iv) It must not be redeemable at the initiative of the holder. That the following items shall be deducted from the total of Tier 1 capital: (a) Common stock treasury shares. Q Regulations Part I . and (h) Goodwill.1 07. The issue documentation must clearly state that the debt is subordinated. Tier 2 (supplementary) capital which shall be the sum of – (1) Upper Tier 2 capital (a) Paid-up perpetual and cumulative preferred stock. (c) Net unrealized losses on underwritten listed equity securities purchased (for IH). That repayment may be Manual of Regulations for Non-Bank Financial Institutions . (g) Deferred income tax. other credit accommodations and guarantees granted to subsidiaries and affiliates. unsecured subordinated debt with a minimum original maturity of at least ten (10) years. the premium cannot be counted as part of capital.31 (4) Perpetual and non-cumulative preferred stock dividends distributable. further. as authorized by the Monetary Board.Page 12 (d) Net unrealized gains on underwritten listed equity securities purchased: Provided. (c) Appraisal increment reserve – QB premises. (v) It must not contain any clause which requires acceleration of payment of principal.25%) of gross risk-weighted assets. (b) Perpetual and non-cumulative preferred stock treasury shares. both direct and indirect. except those creditors expressed to rank equally with. result in an excessive reliance on preferred stock within Tier 1: Provided. Only the net proceeds actually received from debt issues can be included as capital. (vi) It must not be repayable prior to maturity without the prior consent of the BSP: Provided. (7) Undivided profits. That a QB shall not use minority interests in the equity accounts of consolidated subsidiaries as avenue for introducing into its capital structure elements that might not otherwise qualify as Tier 1 capital or that would. (b) Perpetual and cumulative preferred stock dividends distributable. (iii) It must be fully paid-up. (d) Unbooked valuation reserves and other capital adjustments based on the latest report of examination as approved by the Monetary Board. That the amount thereof that may be included in upper Tier 2 capital shall be limited to a maximum of one and twenty-five hundredths percent (1. If the debt is issued at a premium. except in the event of insolvency. and any amount in excess thereof shall be deducted from the total risk-weighted assets in computing the denominator of the risk-based capital ratio. (e) General loan loss provision: Provided. b. (f) Unsecured loans. That the amount thereof that may be included in upper Tier 2 capital shall be subject to a fifty-five percent (55%) discount (for IH). or behind holders of the debt.§ 4116Q. (ii) It must be subordinated in the right of payment of principal and interest to all creditors of the QB. (5) Surplus. That the following items shall be deducted from the total of upper Tier 2 capital: (i) Perpetual and cumulative preferred stock treasury shares. liabilities and forward contracts under existing regulations: Provided furthermore. it shall be revalued periodically (at least monthly) in Philippine peso at prevailing exchange rate using the same exchange rate used for revaluation of foreign currency-denominated assets. and (h) Deposit for perpetual and noncumulative preferred stock subscription: Provided. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . forty percent (40%) if the remaining life is three (3) years to less than four (4) years. That these shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i. (x) It must allow deferment of interest payment on the debt in the event of. it shall not be treated as a deposit substitute liability or other forms of borrowings.Page 13 . etc. (viii) It must provide for possible conversion into common shares or preferred shares or possible deferral of payment of principal and interest if the QB’s capital ratio becomes less than the required minimum capital ratio. the elimination of dividends on all outstanding common or preferred stock of the issuer. That where it is denominated in a foreign currency.31 allowed in connection with call option only after a minimum of five (5) years from issue date and only if – (1) the QB’s capital ratio is at least equal to the required minimum capital ratio.]: Provided. subject to the following conditions: (i) It must not be secured nor covered by a guarantee of the issuer or related party.. (xi) It must be underwritten by a third party not related to the issuer QB nor acting in reciprocity for and in behalf of the issuer QB. forty percent (40%) if the remaining life is three (3) years to less than four (4) years. That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.1 07. (ix) It must provide for the principal and interest on the debt to absorb losses where the QB would not otherwise be solvent. It is acceptable for the deferred interest to bear interest. etc. and (xiii) It must clearly state on its face that it is not a deposit and is not insured by the Philippine Deposit Insurance Corporation (PDIC): Provided. for purposes of reserve requirement regulation. only if the step-up occurs at a minimum of ten (10) years after the issue date and if it results in an increase over the initial rate that is not more than 100 basis points: Provided. twenty percent (20%) if the remaining life is four (4) years to less than five (5) years. That only one (1) rate step up shall be allowed over the life of the instrument. (vii) It may allow a moderate step-up in the interest rate in conjunction with a call option. (c) With prior BSP approval.12. (2) Lower Tier 2 capital – (a) Paid-up limited life redeemable preferred stock: Provided.§ 4116Q. twenty percent (20%) if the remaining life is four (4) years to less than five (5) years. further. That.e. (b) Limited life redeemable preferred stock dividends distributable. and (2) the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue.e. and at the same time as. (g) Deposit for common stock subscription. but the interest rate payable on deferred interest should not exceed market rates. unsecured subordinated debt with a minimum original maturity of at least five (5) years.]. (xii) It must be issued in minimum denominations of at least P500.000 or its equivalent.. and (2) the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue. and (2) Sinking fund for redemption of limited life redeemable preferred stock: Provided. except in the event of insolvency. twenty percent (20%) if the remaining life is four (4) years to less than five (5) years. for purposes of reserve requirement regulation. That repayment may be allowed in connection with call option only after a minimum of five (5) years from issue date and only if – (1) the QB’s capital ratio is at least equal to the required minimum capital ratio. further. except those creditors expressed to rank equally with. That where it is denominated in a foreign currency. That. at the option of the bank: Provided. That only one (1) rate step up shall be allowed over the life of the instrument.1 07.Page 14 (ix) It must be issued in minimum denominations of at least P500. (vii) It may allow a moderate step-up in the interest rate in conjunction with a call option. it shall be revalued periodically (at least monthly) in Philippine peso using the same exchange rate used for revaluation of foreign currencydenominated assets.§ 4116Q. (vi) It must not be repayable prior to maturity without the prior consent of the BSP: Provided. only if the step-up occurs at a minimum of five (5) years after the issue date and if it results in an increase over the initial rate that is not more than 100 basis points or fifty percent (50%) of the initial credit spread. That the following items shall be deducted from the total of Lower Tier 2 capital: (1) Limited life redeemable preferred stock treasury shares.000 or its equivalent. That the amount to be deducted shall be limited to the balance of redeemable preferred stock after applying the cumulative discount factor: Provided. If the debt is issued at a premium. The issue documentation must clearly state that the debt is subordinated. finally. (v) It must not contain any clause which requires acceleration of payment of principal. Subordinated creditors must waive their right to set off any amounts they owe the QB against subordinated amounts owed to them by the QB. and (d) Deposit for perpetual and cumulative preferred stock subscription.31 (ii) It must be subordinated in the right of payment of principal and interest to all creditors of the QB. liabilities and forward contracts under existing regulations: Provided. (iii) It must be fully paid-up. (viii)It must be underwritten by a third party not related to the issuer QB nor acting in reciprocity for and in behalf of the issuer QB. forty percent (40%) if the remaining life is three (3) years to less than four (4) years.e. etc.]: Provided. That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i. Q Regulations Part I . (iv) It must not be redeemable at the initiative of the holder. That the total amount of lower Tier 2 capital that may be included in the Tier 2 capital shall be a maximum of fifty percent (50%) of total Tier 1 capital (net of deductions therefrom): Provided furthermore. it shall not be treated as equivalent to a deposit substitute liability or other forms of borrowings. and (x) It must clearly state on its face that it is not a deposit and is not insured by the PDIC: Provided. the premium cannot be counted as part of capital.. Only the net proceeds actually received from debt issues can be included as capital.12. further. That the total amount of upper and lower Tier 2 capital that may be included in the qualifying capital shall be Manual of Regulations for Non-Bank Financial Institutions . or behind holders of the debt. Provided. but excluding insurance companies (for solo basis). (3) Investments in equity of subsidiary insurance companies and subsidiary nonfinancial allied undertakings.3. and (5) Reciprocal investments in unsecured subordinated term debt instruments of other banks/QBs in excess of the lower of (i) an aggregate ceiling of five percent (5%) of total Tier 1 capital of the QB. Less deductions from the total of Tier 1 and Tier 2 capital. The risk-weighted assets shall be determined by assigning risk weights to amounts of onbalance sheet assets and to credit equivalent amounts of off-balance sheet items (inclusive of derivative contracts): Provided. That the following shall be deducted from the total risk-weighted assets: (1) general loan loss provision (in excess of the amount permitted to be included in upper Tier 2 capital). Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . (2) Twenty percent (20%) risk weight (a) Checks and other cash items (COCIs). (d) Portions of loans covered by Industrial Guarantee and Loan Fund (IGLF) guarantee. (g) Residual value of leased equipment to the extent covered by deposits on lease contracts (for FCs). 4116Q. or (ii) ten percent (10%) of the total outstanding unsecured subordinated term debt issuance of the other bank/QB: Provided. as follows: (1) Investments in equity of unconsolidated subsidiary banks and other subsidiary financial allied undertakings.Page 14a . and (i) Foreign currency notes and coins on hand acceptable as international reserves. (e) Real estate mortgage loans to the extent guaranteed by the Home Guaranty Corporation (HGC).12.31 a maximum of 100% of total Tier 1 capital (net of deductions therefrom). (c) Loans to the extent covered by hold-out on.§§ 4116Q. or assignment of deposit substitutes maintained with the lending QB. (h) Lease contract receivables to the extent covered by the excess of deposits on lease contracts over residual value of leased equipment (for FCs). That any asset deducted from the qualifying capital in computing the numerator of the risk-based capital ratio shall not be included in the risk-weighted assets in computing the denominator of the ratio.1 . 4116Q. c. (f) Loans to the extent guaranteed by the Trade and Investment Development Corporation of the Philippines (TIDCORP). On-balance sheet assets. The riskweighted amount shall be the product of the book value of the asset multiplied by the risk weight associated with that asset.2 Risk-weighted assets. and (2) unbooked valuation reserves and other capital adjustments affecting asset accounts based on the latest report of examination as approved by the Monetary Board.3. a. (As amended by Circular No. 560 dated 31 January 2007) § 4116Q. (b) Claims on or portions of claims guaranteed by or collateralized by securities issued by (i) Philippine national government and BSP. and (ii) Central governments and central banks of foreign countries with the highest credit quality as defined in Subsec. (b) Claims on or portions of claims guaranteed by or collateralized by securities issued by non-central government public sector entities of foreign countries with the highest credit quality as defined in Subsec. as follows: (1) Zero percent (0%) risk weight (a) Cash on hand. (2) Investments in debt capital instruments of unconsolidated subsidiary banks (for solo basis). (4) Reciprocal investments in equity of other banks/enterprises.2 07.4116Q. and (b) Local government unit (LGU) bonds which are covered by deed of assignment of Internal Revenue Allotment of the LGU and guaranteed by the LGU Guarantee Corporation. 4116Q.3. fully secured by first mortgage on residential property that is or will be occupied or leased out by the borrower. (d) Claims on government-owned or controlled commercial corporations. among others.2 05. 4116Q. (c) Claims on non-central government public sector entities of foreign countries other than those with the highest credit quality. (e) Claims on Philippine incorporated banks/QBs other than those with the highest credit quality. the following: (a) Claims on central governments and central banks of foreign countries other than those with the highest credit quality.Page 14b Manual of Regulations for Non-Bank Financial Institutions . (d) Claims on or portions of claims guaranteed by foreign incorporated banks with the highest credit quality as defined in Subsec. and (g) Foreign currency checks and other cash items denominated in currencies acceptable as international reserves. (f) Loans to exporters to the extent guaranteed by Small Business Guarantee and Finance Corporation (SBGFC).3. (Next page is Part I .§ 4116Q.12.31 (c) Claims on or portions of claims guaranteed by Philippine incorporated banks/QBs with the highest credit quality as defined in Subsec. (e) Claims on or portions of claims guaranteed by or collateralized by securities issued by multilateral development banks. (b) Claims on Philippine local government units. (4) One hundred percent (100%) risk weight – All other assets including. (3) Fifty percent (50%) risk weight – (a) Loans for housing purpose.Page 15) Q Regulations Part I . First. as follows: (1) One hundred percent (100%) credit conversion factor This shall apply to direct credit substitutes. This shall include– (i) Underwritten accounts unsold (for IHs). (iii) Goodwill. except those which are deducted from capital. (3) Zero percent (0%) credit conversion factor – Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . fixtures and equipment (net). and (ix) Reciprocal investments in unsecured subordinated term debt instruments of other banks/quasi-banks. e.Page 15 . in excess of the lower of (i) an aggregate ceiling of five percent (5%) of total Tier 1 capital of the quasi-bank.12. (vi) Investments in debt capital instruments of unconsolidated subsidiary banks. (2) Fifty percent (50%) credit conversion factor – This shall apply to – (a) Note issuance facilities and revolving underwriting facilities (for IHs). to DOSRI. (o) Foreign currency notes and coins on hand not acceptable as international reserves..g. and (b) Other commitments. and shall include – (a) Outstanding guarantees issued This shall also apply to sale and repurchase agreements and asset sales with recourse where the credit risk remains with the quasi-bank (to the extent not included in the balance sheet). The riskweighted amount shall be calculated using a two (2)-step process.§ 4116Q. and (p) Foreign currency checks and other cash items not denominated in foreign currencies acceptable as international reserves. (g) Loans to companies engaged in speculative residential building or property development. (iv) Sinking fund for redemption of limited life redeemable preferred stock. b.2 05. (j) Equipment and other real estate for lease (for FCs). (l) Quasi-bank premises. fixtures and equipment (net). or (ii) ten percent (10%) of the total outstanding unsecured subordinated term debt issuance of the other bank/quasi-bank. (ii) Deferred income tax. furniture. (k) Real estate for sale/lease. (v) Equity investments in unconsolidated subsidiary banks and other subsidiary financial allied undertakings. (n) Real and other properties owned or acquired (net). (h) Claims on the private sector (except those deducted from capital). That these items shall be weighted according to the type of asset and not according to the type of counterparty with whom the transaction has been entered into. but excluding insurance companies. and partly-paid shares and securities. e.31 (f) Claims on foreign incorporated banks other than those with the highest credit quality. (i) Equity investments (except those deducted from capital). (m) Appraisal increment – Quasi-bank premises. both direct and indirect. Off-balance sheet items. which represent commitments with certain drawdown: Provided. general guarantees of indebtedness and acceptances (including endorsements with the character of acceptances). as follows: (i) Unsecured credit accommodations. (vii)Equity investments in subsidiary insurance companies and subsidiary nonfinancial allied undertakings. furniture. the credit equivalent amount of an off-balance sheet item shall be determined by multiplying its notional principal amount by the appropriate credit conversion factor. (viii)Reciprocal investments in equity of other banks/enterprises. as well as to forward asset purchases.g. formal standby facilities and credit lines with an original maturity of more than one (1) year. 5% 7. and shall be assigned the appropriate risk weight.§§ 4116Q. That no potential future credit exposure shall be calculated for single currency floating/ floating interest rate swaps.. in comparison with the book value of the on-balance sheet asset or the notional principal amount of the offbalance sheet exposure. except for derivative contracts for which determination is generally made in relation to credit equivalent amount.31 This shall apply to commitments with an original maturity of up to one (1) year. That a fifty percent (50%) risk weight shall be applied in respect of obligors which would otherwise attract a 100% risk weight. The extent to which a claim is guaranteed/collateralized shall be determined by the amount of guarantee coverage/current market value of securities pledged. or if relevant. That for contracts with multiple exchanges of principal.Page 16 remaining payments in the contract: Provided. Appraisal increment reserve. b. furthermore. according to the obligor.5%): Provided.12.3 05.0% Exchange Rate Contract 1. the qualified guarantor or the nature of collateral. This shall also apply to those not involving credit risk. Derivative contracts. c.e.4116Q.5% 5. This refers to all deposits of the reporting quasibank with the BSP.2 . This shall form part of capital only if authorized by the Monetary Board. and shall include – (a) Items held for safekeeping/ custodianship. the credit equivalent amount shall be treated like any on-balance sheet asset and shall be assigned the appropriate risk weight. Second. The current credit exposure shall be the positive mark-to-market value of the contract (or zero if the mark-to-market value is zero or negative). and in the case of interest rate contracts with remaining maturities of more than one (1) year that meet these criteria. i.0% 1.3 Definitions a. the potential future credit conversion factor is subject to a floor of five tenths percent (0. the residual maturity would be set equal to the time until the next reset date.e. That for contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates. (c) Items held as collaterals.5% Provided. Manual of Regulations for Non-Bank Financial Institutions . etc.0% 0. The potential future credit exposure shall be the product of the notional principal amount of the contract multiplied by the appropriate potential future credit conversion factor. the factors are to be multiplied by the number of Q Regulations Part I . Amount due from the BSP. further. i.. § 4116Q. the qualified guarantor or the nature of collateral: Provided. and (2) Exchange rate contracts with original maturity of fourteen (14) calendar days or less.. The credit equivalent amount shall be treated like any on-balance sheet asset.e. The credit equivalent amount shall be the sum of the current credit exposure (or replacement cost) and an estimate of the potential future credit exposure (or add-on): Provided. i. the credit exposure on these contracts would be evaluated solely on the basis of their markto-market value. (b) Trust department accounts. That the following shall not be included in the computation: (1) Instruments which are traded on exchange where they are subject to daily receipt and payment of cash variation margin. or if relevant. according to the obligor. as indicated below: Residual Maturity One (1) year or less Over one (1) year to five (5) years Over five (5) years Interest Rate Contract 0. furniture. This refers to unsecured subordinated term debt instruments qualifying as capital of banks. This refers to the central government which is regarded as such by a recognized banking supervisory authority in that country. h. d. forward foreign exchange contracts. l. FIs catering to small and medium scale industries (including venture capital corporations). f. Central government of a foreign country. but excluding insurance companies. accounts receivable and accrued interest receivable. the following accounts.. Consolidated basis. This refers to combined statement of condition of parent quasi-bank and subsidiary financial allied undertakings. fixtures and equipment net of depreciation. e. (3) Interbank loans receivable. inclusive of accumulated market gains/(losses) and accumulated bond discount/(premium amortization). e. credit card companies. This refer to loans or debt obligations of the entity on whom the claim is held.§ 4116Q. (5) Restructured loans.Page 17 . (7) Underwriting accounts . Foreign country/foreign incorporated bank and Philippine incorporated bank/quasi-bank with the highest credit quality. and shall include. companies engaged in foreign exchange dealership/brokerage. This refers to total cash held by the quasi-bank consisting of both notes and coins in Philippine currency.12. made for purposes of control. g. (12)Investments in bonds and other debt instruments. j. i. currency futures. banks. This refers to investments in capital stock of companies. and net of specific allowance for probable losses: (1) Due from BSP. but shall not be limited to. (10)Trading account securities – equity securities (for IHs). k. Financial allied undertakings. This refers to enterprises or firms with homogenous or similar activities/business/ functions with the financial intermediary and may include but not limited to leasing companies. and furniture. Claims. (9) Trading account securities – debt securities. Debt capital instruments. currency options purchased and similar instruments. FCs. This includes cross-currency interest rate swaps.equity securities (for IHs).debt securities (for IHs). Equity investments. and (13)Others.31 c. fixtures and equipment owned by the quasi-bank. affiliation or other continuing business advantage. Quasi-bank premises. holding companies. (11)Available for sale securities. firms or enterprises. net of advance leasing income received and receivables financed (for FCs). and such other similar activities as the Monetary Board may declare as appropriate from time to time.3 05. including lease contract receivables. (8) Underwriting accounts . This refers to the cost of land and improvements used as the quasi-bank premises. This refers to a foreign country/foreign incorporated bank and Philippine incorporated bank/quasibank given the highest credit rating of any two (2) of the following internationally accepted rating agencies: Rating Agency (1) Moody’s (2) Standard and Poor's Manual of Regulations for Non-Bank Financial Institutions Highest Rating “Aa3” and above “AA-” and above Q Regulations Part I .g. Exchange rate contracts. (4) Loans and discounts. (6) Trading account securities – loans. Cash on hand. companies engaged in stock brokerage/securities dealership. (2) Due from other banks. Accruals on a claim shall be classified and risk weighted in the same way as the claim. IHs. but excluding insurance companies. This refers to a commitment to purchase a loan. A loan shall be considered as secured by a hold-out on. forward rate agreements. q. Loans for housing purpose. that cannot be redeemed at the option of the holder of the instrument. Manual of Regulations for Non-Bank Financial Institutions . p. x.12. Loans to the extent covered by hold-out on. Other commitments. Goodwill. r. This refers to an arrangement whereby a borrower may draw down funds up to a prescribed limit over an extended period by repeated issues to the market of promissory notes which the quasi-bank committed to underwrite.3 05. o. provincial. t. Forward asset purchases. v. Interest rate contracts. This arises where only a part of the issue price or nominal face value of a security purchased has been subscribed and the issuer may call for the outstanding balance (or a further installment). Note issuance facilities and revolving underwriting facilities. Multilateral development banks. or at an unspecified future date. Philippine local government units. This includes single-currency interest rate swaps. fully secured by first mortgage on residential property that is or will be occupied or leased out by the borrower. interest rate futures. That these can be unconditionally cancelled at any time and are subject to credit revision at least annually. e. Inter-American Development Bank. and municipal governments. European Investment Bank and European Bank for Reconstruction and Development. This refers to an intangible asset that represents the excess of the purchase price over the fair market value of identifiable assets acquired less liabilities assumed in acquisitions accounted for under the purchase method of accounting. This refers to preferred stock that does not have a maturity date. This refers to International Bank for Reconstruction and Development (IBRD). This shall not include loans transferred to/ carried by the quasi-bank’s trust department secured by deposit substitute hold-out/ assignment. and that has no provision that will require future redemption of the issue. Non-central government public sector entity of a foreign country. y. unused credit lines: Provided. This includes undrawn portion of any binding arrangements which obligate the quasibank to provide funds at some future date. n.. such as city. basis swaps. Consistent with these provisions. Partly-paid shares and securities.Page 18 s. Q Regulations Part I . either on a date predetermined at the time of issue. This refers to the Philippine government units below the level of national government. interest rate options purchased and similar instruments. security or other asset at a specified future date. Other commitments with an original maturity of up to one (1) year. This refers to entities which are regarded as such by a recognized banking supervisory authority in the country in which they are incorporated. usually on pre-arranged terms. African Development Bank.31 (3) Fitch IBCA (4) Others as may be approved by the Monetary Board “AA-” and above m. or assignment of deposit substitutes maintained in the lending quasibank. any perpetual preferred stock with a feature permitting redemption at the option of the issuer may qualify as capital only if the redemption is subject to prior approval of the BSP. u. This includes any revolving or undated open-ended commitments. w.§ 4116Q.g. Asian Development Bank (ADB). Perpetual preferred stock . This shall not include loans to companies engaged in speculative residential building or property development. or assignment of deposit substitute only if such deposit substitute account is covered by a hold-out agreement or deed of assignment signed by the investor/placer in favor of the quasi-bank. and instrumentalities. This refers to the QB’s own shares of stock that have been issued and fully paid for. Philippine national government. This refers to entities other than banks. or when a QB is under rehabilitation under a program approved by the BSP. the Monetary Board after considering a report of the appropriate department of the SES on the state of solvency of the institution concerned. such as government-owned or-controlled commercial corporations. but excluding government-owned and-controlled commercial corporations.3 . but excluding insurance companies) quarterly to the appropriate department of the SES in the prescribed forms within the deadlines.2.e. shall limit or prohibit the distribution of the net profits and shall require that part or all of net profits be used to increase the capital accounts of the QB until the minimum requirement has been met. with the exception of purchases of readily marketable evidences of indebtedness issued by the Philippine national government and BSP included in Item “a(1)(b)i” of Subsec. subsequently reacquired through purchase or donations and have not been cancelled or re-issued.. consolidated QB. The above-mentioned reports shall be classified as Category A-2 reports. § 4116Q.31 z.4116Q. the Monetary Board may temporarily relieve the surviving QB.6 Temporary relief. (5) Subsidiary. (3) Sale and repurchase agreements and asset sales with recourse. Only QBs with subsidiary financial allied undertakings (excluding insurance companies) which under existing regulations are required to prepare consolidated statements of condition on a line-by-line basis shall be required to submit report on consolidated basis. This also refers to shares of a parent QB held by a subsidiary financial allied undertaking in a consolidated statement of condition. respectively. § 4116Q. i. Whenever the capital accounts of a QB are deficient with respect to the prescribed capital adequacy ratio.5 Sanctions. (1) Private sector. security or fixed asset to a third party with a commitment to repurchase the asset after a certain time. This refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. fifteen (15) business days and thirty (30) business days after the end of reference quarter. (6) Treasury shares. (4) Solo basis.4 Required reports. or in the event of a certain contingency. § 4116Q. until the minimum required capital ratio has been restored. This refers to combined statement of condition of head office and branches. 4116Q. This refers to arrangements whereby a QB sells a loan.Page 19 . offices. (2) Redeemable preferred stock.6 05. controlled or held with the power to vote by a QB. or constituent QB or corporations under rehabilitation from full compliance with the required capital ratio for a maximum period of one (1) year. QBs and governments. This shall refer to the Philippine national government and its agencies such as departments.§§ 4116Q. The Monetary Board may restrict or prohibit the making of new investments of any sort by the QB. QBs shall submit a report of their risk-based capital adequacy ratio on a solo basis (head office plus branches) and on a consolidated basis (parent QB plus subsidiary financial allied undertakings. bureaus. This shall also include commercial companies owned by the public sector.12. This refers to preferred stock which may be redeemed at the specific dates or periods fixed for redemption. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . In case of QB merger or consolidation. 4116Q for every day of such reporting period. 585 dated 15 October 2007) Secs. the entity maintains the minimum capital required under Sec. For purposes of computing the prescribed ratio of net worth (or combined capital accounts) to risk assets. equity investments of a QB in another QB shall be deducted from its net worth if the investee QB has a reciprocal equity investment in the investing QB. the entity maintains the minimum capital required under Sec. c.§§ 4117Q . (c) For the third consecutive offense extension of the penalty under the preceding paragraph for another thirty (30) calendar days. the Certificate of Authority for quasi-banking functions shall be suspended/revoked. 4117Q Treatment of Equity Investment with Reciprocal Stockholdings. New loans and new investments shall refer to any loan or investment involving disbursement of funds. Any QB which is deficient in the capital requirement under Sec. shall be deducted from the net worth of the QBs. in which case the investment of the QB or the reciprocal investment of the other QB. The Monetary Board may impose additional sanctions on the entity engaged in quasi-banking functions by: (1) Revoking the Certificate of Authority to engage in quasi-banking functions. 4116Q for every day of such reporting period..000. 4118Q Sanctions on Net Worth Deficiency a.12.4120Q (Reserved) E. except government securities. (b) For the second consecutive offense prohibition from extending new loans or making new investments for a period of thirty (30) calendar days. whichever is lower. Q Regulations Part I .4125Q (Reserved) Manual of Regulations for Non-Bank Financial Institutions . the suspension shall extend for another thirty (30) calendar days. QBs shall pay P600 per day for every day the report is not corrected. The suspension shall be automatically lifted if in the final reporting period of the period of suspension. (c) The suspension shall be automatically lifted if on the final reporting period of the period of suspension. agencies. (b) For every consecutive reporting period. 4121Q .suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days. and (2) Such other sanctions as the BSP may deem necessary. b. d. (3) In all of the cases abovementioned. (As amended by Circular No. shall be suspended. 4119Q .a fine of P3. For improperly accomplished report. (d) For the fourth consecutive offense suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days. counted as of the date the error is brought to its attention until the corrected report is submitted. establishment of branches. For willfully making false statements in the report or submitting a false report.4125Q 07. 4116Q shall be liable to the following sanctions: (1) In case of capital deficiency for five (5) or more times within a reporting period: (a) For the first offense . (RESERVED) Secs. extension offices. etc.31 Sec.Page 20 (2) In case of continuous capital deficiency: (a) For two (2) consecutive reporting periods . Sec. at the time of declaration.31 F. or otherwise to place it in current status.2.4126Q. or fifty percent (50%) of the other personal properties offered as lien.§§ 4126Q . (3) Statutory and liquidity reserves requirement. 4126Q. within this period.A debt due to a QB shall be considered in process of collection when it is the subject of continuing extrajudicial or judicial proceedings aimed towards its full settlement or liquidation. STOCK. The debt shall continue to be considered in process of collection during the pendency of the judicial proceedings. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .A. plus all interests which may have accrued thereon. unless the loan is well secured and in process of collection. no QB shall declare dividends greater than its accumulated net profits then on hand. § 4126Q. The debt shall continue to be considered in process of collection for a period of six (6) months counted from date of the first collection or demand letter and if. STOCKHOLDERS AND DIVIDENDS Sec. Pursuant to Section 57 of R. In process of collection . A loan payable in installment with an automatic acceleration clause shall be considered a bad debt within the contemplation of this Section where installments or amortizations have become past due for a period of six (6) months. must have been initiated by the QB and/or its lawyers before the interest or installments or amortizations on the debt become past due and unpaid for a period of six (6) months. (2) Minimum capitalization requirement and risk-based capital ratio. such as the writing of collection or demand letters. (4) No past due loans with any institution. or lien on real or personal properties. including securities. c. When judgment against the debtor has been obtained. unless it is well secured and in process of collection. 4126Q Dividends. the QB must be active in enforcing the judgment for the debt to continue to be considered in process of collection. No. accrued interest and other pertinent fees and expenses thereon shall not be in excess of seventy percent (70%) of the appraised value of real estate. Neither shall the QB declare dividends if. For a loan payable in installments without an acceleration clause. it has not complied with the provisions of Subsec. QBs shall have complied with the following: (1) Clearing account with the BSP is not overdrawn.2 07. The extrajudicial proceedings.1 Definition of terms.2 Requirements on the declaration of dividends/net amount available for dividends a.A debt shall be considered well secured (or fully secured) if it is covered by collateral in the form of a duly constituted mortgage.Page 21 . the debtor fails to make a payment of at least twenty percent (20%) of the outstanding balance of the principal on his account. the same shall automatically be classified as bad debt unless judicial proceedings are instituted. At the time of declaration. b. Requirements on the declaration of dividends.12. deducting therefrom its losses and bad debts. pledge. Bad debts shall include any debt on which interest is past due for a period of six (6) months. 8791. § 4126Q. Well secured . The outstanding debt. only the installments or amortizations that have become past due for a period of six (6) months and which are not well secured and in the process of collection shall be considered bad debts within the contemplation of this Section. For purposes of this Section. the following definitions shall apply: a. 3 07. whether or not allowed to be set up on a staggered basis. and (6) Has not committed any of the following major violations: (a) Loans and other credit accommodations and guarantees granted in excess of the single borrower’s limit. subject to the condition that the record date for such dividends cannot be set earlier than thirty (30) business days after declaration. net of booked valuation reserves on accrued interest receivable or allowance for uncollectible interest on loans. (2) Unbooked valuation reserves.§§ 4126Q. and (i) Failure to comply with the capital build-up program approved by the Monetary Board. (f) Major violations/exceptions cited in the previous examination not duly acted upon or not yet corrected.3 Reporting and verification Declaration of cash dividend shall be reported by the QB concerned to the appropriate department of the SES within ten (10) business days from date of approval of the declaration by the QB’s board of directors.Page 22 (1) Bad debts against which valuation reserves are not required by the BSP to be set up. (h) Refusal to permit examination into the affairs of the institution or any willful making of a false or misleading statement to the Monetary Board or to the appropriate department of the SES. in the prescribed form.4126Q. after thirty (30) business days from the date the report required herein shall have been received by the BSP. b. and (6) Foreign exchange profit arising from revaluation of foreign exchange denominated accounts. if. (g) Transactions or activities without prior approval or necessary license from the BSP such as. (e) Investments in real estate. (c) Unsafe and unsound banking practice as defined under existing BSP regulations. trust and e-banking. QBs which have committed any of the major violations under Item “a(6)” above may only be allowed to declare dividends by the Monetary Board upon recommendation of the appropriate department of the SES that the QB has corrected the major violation/s that it has committed. The net amount available for dividends shall be the amount of unrestricted or free retained earnings and profit and loss summary less: Q Regulations Part I . (3) Deferred income tax. QBs whose shares are listed with any domestic stock exchange may give notice Manual of Regulations for Non-Bank Financial Institutions . In any case. Pending verification of abovementioned report by the appropriate department of the SES. 4307Q. the QB concerned shall not make any announcement or communication on the declaration of cash dividends nor shall any payment be made thereon.31 (5) No net losses from operations in any one of the two (2) fiscal years immediately preceding the date of dividend declaration. 571 dated 21 June 2007) § 4126Q. (5) Accrued interest as required to be excluded pursuant to Item “c” of Subsec. QB premises and equipment in excess of prescribed ceilings. (As amended by Circular No. but not limited to derivatives. the declaration may be announced and the dividends paid. (4) Accumulated profits not yet received but already recorded by the QB representing its share in profits of its subsidiaries under the equity method of accounting. (d) Equity investments in excess of the prescribed ceilings. (b) Loans and other credit accommodations granted/extended in excess of the ceilings on accommodations to DOSRI.2 . and other unbooked capital adjustments required by the BSP.12. Amount available.7. no advice against such declaration has been received by the QB concerned. 3 . or if no such approval is received.4 Recording of dividends The liability for cash dividends declared shall be taken up in the books upon receipt of BSP approval thereof.4 05.§§ 4126Q. whichever comes earlier.Page 23) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .12.31 of cash dividend declaration in accordance with pertinent rules of the SEC: Provided. That no record date is fixed for such cash dividend. after thirty (30) business days from the date required report on cash dividend declaration was received by the appropriate department of the SES. pending verification of the report on such declaration by the appropriate department of the SES. The cash dividends (Next page is Part I .Page 22a . A memorandum entry may be made to record the dividend declaration on the date of approval by the board of directors and for full disclosure purposes.4126Q. § 4126Q. responsibilities and duties of the board of directors and directors. Additional paid-in capital may be included in the amount available for stock dividends.5 Rules on declaration of stock dividends. is independent of management and free from any business or other relationship. 4127Q . qualifications. other than transactions which are conducted at arms length and could not materially interfere with or influence the exercise of his judgment.1 Limits on the number of the members of the board of directors Pursuant to Sections 15 and 17 of R. shall not be treated as interest expense. § 4141Q. its subsidiaries or affiliates or related interests during the past three (3) years counted from the date of his election. (b) subsidiary or affiliate. 4141Q Definition. agent or counsel of the institution. any of its related companies. there shall be at least five (5). any of its related companies or any of its substantial shareholders. officer or majority shareholder of the quasibank/trust entity or any of its related companies.12. and (6) Is not retained as professional adviser. whether on common or on preferred shares of stock. either in his personal capacity or through his firm. An independent director shall mean a person who – (1) Is not or has not been an officer or employee of the quasi-bank/trust entity. or of its majority shareholders. OFFICERS AND EMPLOYEES Sec. whether by himself or with other persons or through a firm of which he is a partner or a company of which he is a director or substantial shareholder. § 4126Q. (2) Is not a director or officer of the related companies of the institution’s majority stockholder. any of its related companies or any of its substantial shareholders. The declaration of stock dividends shall be subject to the preceding regulations on declaration of cash dividends. powers.A. legitimate or common-law of any director. or vice-versa: Provided.4 . considering that as a general policy only irredeemable stock may be issued by quasi-banks. Dividends of all kinds. and a maximum of fifteen (15) members of the board of directors of a quasi-bank/trust entity two (2) of whom shall be independent directors: Provided. That in case of a quasi-bank/trust entity merger or consolidation. No. consultant. Responsibilities and Duties of Board of Directors and Directors.4141Q. has not engaged and does not engage in any transaction with the institution or with any of its related companies or with any of its substantial shareholders.Page 23 . Powers. or (d) other related companies.31 may be disclosed in the financial statements by means of a footnote which should include a statement to the effect that the dividend declaration is subject to review by the BSP. DIRECTORS. The following shall be the definition. 8791. Qualifications.§§ 4126Q. (4) Is not a relative within the fourth degree of consanguinity or affinity. (5) Is not acting as a nominee or representative of any director or substantial shareholder of the quasi-bank/trust entity. Secs. (3) Is not a majority stockholder of the institution. the number of directors may be increased up to twenty-one (21). An independent director of a quasibank/trust entity can be elected as an independent director of its: (a) parent or holding company. The terms and phrases used in Items “(1)” to “(6)” shall have the following meaning: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .1 05. That he is not a substantial shareholder of the quasi-bank/trust entity or any of the said concerned entities.4140Q (Reserved) G. (c) substantial shareholder. or (c) a corporation where a quasi-bank/trust entity or its majority stockholder own such number of shares that will allow/enable him to elect at least one (1) member of the board of directors or a partnership where such majority stockholder is a partner. or (iii) power to appoint or remove the majority of the members of the board of directors or equivalent governing body. 68). No. Non-Filipino citizens may become members of the board of directors of a quasi-bank/trust entity to the extent of the foreign participation in the equity of said quasi-bank/trust entity: Provided. and two (2) or more corporations owned or controlled by a single individual or by the same family group or the same group of persons. in exceptional circumstance. is controlled by. (b) its subsidiary or affiliate. or is under common control with the quasibank/trust entity or its affiliates.Page 24 (f) Related company means another company which is: (a) its parent or holding company. The meetings of the board of directors may be conducted through modern technologies such as. (h) Majority stockholder or majority shareholder means a person. That pursuant to Section 23 of the Corporation Code of the Philippines (BP Blg. further.§ 4141Q. teleconferencing and videoconferencing as long as the director who is taking part in said meetings can actively participate in the deliberations on matters taken up therein: Provided. Q Regulations Part I . (g) Substantial or major shareholder shall mean a person.A.1 05. whether natural or juridical. whether natural or juridical. Control may also exist even when ownership is one-half or less of the voting power of an enterprise when there is: (i) power over more than one-half of the voting rights by virtue of an agreement with other stockholders. That in the case of a director who is unable to physically attend or participate Manual of Regulations for Non-Bank Financial Institutions . or (ii) power to govern the financial and operating policies of the enterprise under a statute or an agreement.12. That every member of the board shall participate in at least fifty percent (50%) and shall physically attend at least twenty-five percent (25%) of all board meetings every year: Provided. (b) Subsidiary means a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly through one (1) or more intermediaries by a quasi-bank/trust entity. but not limited to. (d) Related interests as defined under Sections 12 and 13 of R. (e) Control exists when the parent owns directly or indirectly through subsidiaries more than one-half of the voting power of an enterprise unless. 8791 shall mean individuals related to each other within the fourth degree of consanguinity or affinity. through one (1) or more intermediaries. it can be clearly demonstrated that such ownership does not constitute control. or (v) any other arrangement similar to any of the above. or (iv) power to cast the majority votes at meetings of the board of directors or equivalent governing body.31 (a) Parent is a corporation which has control over another corporation directly or indirectly through one (1) or more intermediaries. a majority of the directors must be residents of the Philippines. legitimate or common law. owning such number of shares that will allow him to elect at least one (1) member of the board of directors of a quasi-bank/trust entity or who is directly or indirectly the registered or beneficial owner of more than ten percent (10%) of any class of its equity security. owning more than fifty percent (50%) of the voting stock of a quasi-bank/trust entity. (c) Affiliate is a juridical person that directly or indirectly. 2 Qualifications of a director. responsible for monitoring and overseeing management action. its business conducted and all its property shall be controlled and held by its board of directors. the corporate secretary shall execute a notarized certification attesting that said director was given the agenda materials prior to the meeting and that his/her comments/ decisions thereon were submitted for deliberation/discussion and were taken up in the actual board meeting. as the case may be. its stockholders. diligence and experience/training.§§ 4141Q. In determining whether a person is fit and proper for the position of a director. The directors hold their office charged with the duty to act for the quasibank/trust entity in accordance with their best judgment. A director shall have the following minimum qualifications: a. He shall be at least twenty-five (25) years of age at the time of his election or appointment. its management and employees.31 in board meetings via teleconferencing or videoconferencing.e. The corporate powers of a quasi-bank/trust entity shall be exercised. education. § 4141Q.3 05. b. the following matters must be considered: integrity/probity. The foregoing qualifications for directors shall be in addition to those required or prescribed under R.1 . i. and that the submission of said certification shall be considered compliance with the required fifty percent (50%) minimum attendance in board meetings. c. Specific duties and responsibilities of the board of directors (1) To select and appoint officers who are qualified to administer the quasi-bank’s/ Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . These constituencies or stakeholders have the right to expect that the institution is being run in a prudent and sound manner. General responsibility of the board of directors. competence. § 4141Q. No. its clients and other creditors. policies and procedures that will guide and direct the activities of the quasi-bank/trust entity and the means to attain the same as well as the mechanism for monitoring management’s performance. He shall be at least a college graduate or have at least five (5) years experience in business. however. the board of directors is. b. Powers of the board of directors. He must have attended a special seminar for board of directors conducted or accredited by the BSP: Provided. and d. He must be fit and proper for the position of a director of the quasi-bank/ trust entity. That incumbent directors as well as those elected after 17 September 2001 must attend said seminar on or before 31 December 2002 or within a period of six (6) months from date of election for those elected after 31 December 2002.3 Powers/responsibilities and duties of board of directors and directors a.Page 25 . The board of directors is primarily responsible for the corporate governance of the quasi-bank/trust entity. 8791 and other existing applicable laws and regulations.4141Q. and the public at large.A. To ensure good governance of the quasi-bank/trust entity..12. the board of directors should establish strategic objectives. c. the quasi-bank/trust entity itself. While the management of the day-to-day affairs of the institution is the responsibility of the management team. The powers of the board of directors as conferred by law are original and cannot be revoked by the stockholders. The position of a quasi-bank/ trust entity director is a position of trust. A director assumes certain responsibilities to different constituencies or stakeholders. A mechanism to ensure compliance with said policies shall also be provided. Although directors may delegate certain authority to senior officers. The board should have a schedule of matters and authorities reserved to it for decision. The board of directors should prescribe corporate values. with corrective action taken as needed. As quasibanks/trust entities are entrusted with the handling and investment of public funds.12. Among the members of the board. investments.Page 26 (4) To establish and ensure compliance with sound written policies. business plans should be established to direct its on-going activities. And because mutual trust and a close working relationship are important. or unethical conduct shall be strictly prohibited. loans. committee. either current or planned. technical expertise and experience in the institution’s business.§ 4141Q. it is their responsibility to supervise and be responsible for the institution’s sound management. personal gain at the expense of the institution. i. incorporating a hierarchy of required approvals from individuals to the board of directors. should be the key considerations in the selection process. the board’s choice should share its general operating philosophy and vision for the institution. It is the primary responsibility of the board of directors to appoint competent management team at all times. Among others. The board should ensure that performance against plan is regularly reviewed. Integrity. Consistent with the institution’s objectives. asset and liability management. such as: major capital expenditures. it observes a high standard of integrity. The system should also provide a mechanism for effective check and controlby the board over the chief executive officer and key managers Manual of Regulations for Non-Bank Financial Institutions . (5) To prescribe a clear assignment of responsibilities and decision-making authorities. as well as its problems. business planning and budgeting. good business judgment and competence than that of directors of ordinary companies. investing or committing the quasi-bank/trust entity to any financial undertaking or exposure to risk at any time. Q Regulations Part I . The board of directors should establish a system of checks and balances which applies in the first instance to the board itself. it is in the institution’s best interest that in dealings with the public. The board should adopt written policies on all major business activities. (2) To establish objectives and draw up a business strategy for achieving them. the senior management and other employees. the supervision required from the board involves a higher degree of wisdom.e. (3) To conduct the affairs of the institution with high degree of integrity. sub-committee and such other group for the purpose of lending.31 trust entity’s affairs effectively and soundly and to establish adequate selection process for all personnel. prudence. activities and transactions that could result or potentially result in conflict of interest. (6) To effectively supervise the quasibank’s/trust entity's affairs. The board of directors should apply fit and proper standards on key personnel. The board of directors shall establish an appropriate compensation package for all personnel which shall be consistent with the interest of all stakeholders. an effective system of checks and balances must exist. The board should establish in writing the limits of the discretionary powers of each officer. codes of conduct and other standards of appropriate behaviour for itself.3 05.. It should provide policies that will prevent the use of the facilities of the quasi-bank/ trust entity in furtherance of criminal and other illegal activities. Since reputation is a very valuable asset. equity investments and divestments. The Audit Committee shall establish and maintain mechanisms by which officers and staff may. including financial. The audit committee shall be composed of members of the board of directors. auditing or other issues to persons or entities that have the power to take corrective action. and (e) effective internal controls and a comprehensive risk-reporting process.§ 4141Q. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . For this purpose. as well as the reporting relationship with the board of directors. (7) To monitor.3 05. (b) a detailed structure of limits. at least two (2) of whom shall be independent directors. It shall be responsible for the setting up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor who shall both report directly to the audit committee. assess and control the performance of management. (9) To constitute the following committees:1 (a) Audit committee. (b) Corporate governance committee. This charter shall be approved by the board of directors and reviewed and updated periodically. The board shall put in place an appropriate reporting system so that it is provided with relevant and timely information to be able to effectively assess the performance of management. or related financial management expertise or experience. The audit committee shall ensure that a review of the effectiveness of the institution’s internal controls. the board of directors shall draw up a written charter or terms of reference which clearly sets out the audit committee’s authority and duties.Page 27 . in confidence. It shall monitor and evaluate the adequacy and effectiveness of the internal control system. it may constitute a governance committee. internal control. full access to and cooperation by management and full discretion to invite any director or executive officer to attend its meetings. The board may constitute a committee for this purpose. Upon setting up the audit committee. appropriate follow-up action. It -----------------------------------------------------------------------------------1 Effective 01 January 2005 under Circular 456 dated 04 October 2004. (c) a clear delineation of lines of responsibilities for managing risk. auditing. (d) an adequate system for measuring risk.31 and by the latter over the line officers of the quasi-bank/trust entity. and subsequent resolution of complaints. The corporate governance committee shall assist the board of directors in fulfilling its corporate governance responsibilities. raise concerns about possible improprieties or malpractices in matters of financial reporting. The audit committee provides oversight of the institution’s financial reporting and control and internal and external audit functions. and risk management. and adequate resources to enable it to effectively discharge its functions. (8) To adopt and maintain adequate risk management policy. The risk management policy shall include: (a) a comprehensive risk management approach. including the chairman. The board of directors shall be responsible for the formulation and maintenance of written policies and procedures relating to the management of risks throughout the institution. It shall ensure that arrangements are in place for the independent investigation. is conducted at least annually. operational and compliance controls. The audit committee shall have explicit authority to investigate any matter within its terms of reference. guidelines and other parameters used to govern risk-taking.12. preferably with accounting. . that the limits are observed and that immediate corrective actions are taken whenever limits are breached. attendance. Priority areas of concern are those risks that are the most likely to occur and are costly when they happen. Internal guidelines shall be adopted that address the competing time commitments that are faced when directors serve on multiple boards. (ii) Develop risk management strategies.§ 4141Q. The committee shall make recommendations to the board regarding the continuing education of directors. competence. assignment to board committees. It shall oversee the periodic performance evaluation of the board and its committees and executive management.3 05. and shall also conduct an annual self-evaluation of its performance. The risk management committee shall have a written charter that defines the duties and responsibilities of its members. It shall identify practical strategies to reduce the chance of harm and failure or minimize losses if the risk becomes real. The charter shall be approved by the board of directors and reviewed and refined periodically. The corporate governance committee shall have a written charter that describes the duties and responsibilities of its members.12.Page 28 indicators shall address how the board has enhanced long term shareholders’ value. The committee shall assess the probability of each risk becoming reality and shall estimate its possible effect and cost. Such performance Q Regulations Part I . and their remuneration commensurate with corporate and individual performance. The committee shall be composed of at least three (3) members of the board of directors who shall possess a range of expertise as well as adequate knowledge of the institution’s risk exposures to be able to develop appropriate strategies for preventing losses and minimizing the impact of losses when they occur. (iii) Implement the risk management plan. The core responsibility of the risk management committee are: (i) Identify and evaluate exposures. The committee shall be composed of at least three (3) members of the board of directors. The risk management committee shall develop a written plan defining the strategies for managing and controlling the major risks. succession plan for the board members and senior officers. (c) Risk management committee. The risk management committee shall be responsible for the development and oversight of the institution’s risk management program.31 shall review and evaluate the qualifications of all persons nominated to the board as well as those nominated to other positions requiring appointment by the board of directors. The corporate governance committee shall decide the manner by which the board’s performance may be evaluated and propose an objective performance criteria approved by the board. The committee shall be responsible for ensuring the board’s effectiveness and due observance of corporate governance principles and guidelines. preparedness and participation). candor. This charter shall be approved by the board of directors and reviewed and updated at least annually.g. The committee shall also decide whether or not a director is able to and has been adequately carrying out his/her duties as director bearing in mind the director’s contribution and performance (e. It shall oversee the system of limits to discretionary authority that the board delegates to management. ensure that the system remains effective. two (2) of whom shall be independent directors. The risk management committee shall Manual of Regulations for Non-Bank Financial Institutions . (13) To assess at least annually its performance and effectiveness as a body. To properly discharge its function. To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws. a system and procedure for evaluation shall be adopted which may include. (12) To ensure that the quasi-bank/ trust entity has beneficial influence on the economy. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. look for emerging or changing exposures.Page 29 . rules and regulations. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . That every member of the board shall be physically present in at least fifty percent (50%) of all board meetings in every year. the chief executive officer and the quasi-bank/trust entity itself. but not limited to. actions taken to reduce the risks. (11) To keep the individual members of the board and the shareholders informed. the board shall appoint a compliance officer who shall be responsible for coordinating. teleconferencing and video-conferencing as long as the director who is taking part in said meetings can actively participate in the deliberations on matters taken up therein: Provided. All members of the board shall have reasonable access to any information about the institution. comprehensiveness. It shall revisit strategies. The committee shall evaluate the risk management plan to ensure its continued relevancy. the board of directors shall meet regularly.12. as well as its various committees. and recommend further action or plans as necessary.31 communicate the risk management plan and loss control procedures to affected parties. (10) To meet regularly. but not limited to. If the directors carry the institution into a transaction outside the scope of the business agreed upon in the articles. The board has a continuing responsibility to provide those services and facilities which will be supportive of the national economy. which they know or ought to know to be unauthorized. charter. (14) To keep their authority within the powers of the institution as prescribed in the articles of incorporation. monitoring and facilitating compliance with existing laws. they may be called upon to reimburse the institution for that loss. The composition of the board shall also be reviewed regularly with the end in view of having a balanced membership. It may also constitute a compliance committee. with resulting loss to the institution. The committee shall report regularly to the board of directors the entity’s over-all risk exposure. bylaws and in existing laws. The meetings of the board of directors may be conducted through modern technologies such as. rules and regulations. Independent views in board meetings shall be given full consideration and all such meetings shall be duly minuted. If directors willfully do an act. they are clearly liable to the institution for resulting damages. The committee shall conduct regular discussions on the institution’s current risk exposure based on regular management reports and direct concerned units or offices on how to reduce these risks. (iv) Review and revise the plan as needed.3 05. and effectiveness. It should also provide appropriate information that flows internally and to the public. Towards this end. and stay abreast of developments that affect the likelihood of harm or loss. the setting of benchmark and peer group analysis.§ 4141Q. It is the duty of the board to present to all its members and to the shareholders a balanced and understandable assessment of the quasibank’s/trust entity’s performance and financial condition. rules and regulations. request and review meeting materials. and request explanations and be familiar with audits and supervisory communications. it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. the requirements of other regulatory agencies and must exercise care to see that these are not violated. (5) To exercise independent judgment.§§ 4141Q.4 05.3 .Page 30 attention to the affairs of the institution. If a person cannot give sufficient time and Q Regulations Part I . § 4141Q. other clients and the general public. he should carefully evaluate the situation and state his position. he should also give due regard to the rights and interests of other stakeholders.12.4 Confirmation of the election/ appointment of directors and officers.4141Q. and other stakeholders such as its investors. He may not disclose said information to any other person without the authority of the board. he should neither accept his nomination nor run for election as member of the board. He should avoid situations that would compromise his impartiality. whenever possible. When a disagreement with others occurs. including the content of its articles of incorporation and by-laws. He should also keep himself informed of the industry developments and business trends in order to safeguard the institution's competitiveness. its stockholders. (6) To be generally informed of both the quasi-bank’s/trust entity’s business environment and legal and regulatory framework controlling its activities. Corollarily. A director should devote sufficient time to familiarize himself with the institution’s business. (2) To act honestly and in good faith. The election/appointment of directors and officers of quasi-banks/trust entities shall be subject to confirmation by the: Manual of Regulations for Non-Bank Financial Institutions . He must attend and actively participate in board and committee meetings. Specific duties and responsibilities of a director (1) To conduct fair business transactions with the quasi-bank/trust entity and to ensure that personal interest does not bias board decisions. with the care which an ordinarily prudent man would exercise under similar circumstances. Before deciding on any matter brought before the board of directors. He should not be afraid to take a position even though it might be unpopular. every director should thoroughly evaluate the issues. A director should have a working knowledge of the statutory and regulatory requirements affecting the institution. regardless of the amount of their stockholdings. If transactions with the institution cannot be avoided. (4) To act judiciously. He must be constantly aware of the institution’s condition and be knowledgeable enough to contribute meaningfully to the board’s work. with loyalty and in the best interest of the institution. A director must always act in good faith. avoid situations that would give rise to a conflict of interest. he should support plans and ideas that he thinks will be beneficial to the institution. ask questions. (3) To devote time and attention necessary to properly discharge his duties and responsibilities. borrowers. the requirements of the BSP and where applicable. While a director should always strive to promote the interest of all stockholders. A director should. (7) To observe confidentiality. ask questions and seek clarifications when necessary.31 d. The basic principle to be observed is that a director should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. A director must observe the confidentiality of non-public information acquired by reason of his position as director. A director should view each problem/situation objectively. vice president. senior vice-president. treasurer. or are generally known to be the officers of the QB/trust entity (or any of its branches and offices other than the head office) either through announcement. 7653 and to the provisions of Section 16 of R. executive vice president. president. Without prejudice to the other sanctions prescribed under Section 37 of R.§§ 4141Q. No. No.10 Sanctions. 4141Q. or those whose duties as such are defined in the by-laws. whose duties include functions of management such as those ordinarily performed by regular officers.4141Q. and are not purely recommendatory or advisory. He shall be at least a college graduate. secretary. Officers shall include the president. Copies of the acknowledgment and certification herein required shall be submitted in accordance with Appendix Q-3.A.5 . or in a field related to his position and responsibilities. representation. He shall be at least twenty-one (21) years of age.12.Page 31 .9 Reports required. shall likewise be considered as officers. chief executive officer. The directors/trustees concerned shall each be required to acknowledge receipt of the copies of such specific duties and responsibilities and shall certify that they fully understand the same.SES (2)Managing Directors of SE I and II (3)Directors of the appropriate department of the SES Position Level Director/trustee. general manager. A Committee to be composed of: (1)The Deputy Governor . Monetary Board b. senior vice president or equivalent rank of QBs/ trust entities with total assets of at least P1 billion. any director/trustee of a QB/trust entity who violates or fails to observe and/ or perform any of the above responsibilities and duties shall for each violation or offense. 4142Q Definition and Qualifications of Officers. §§ 4141Q. § 4141Q. including sub-groups or subcommittees. publication or any kind of communication made by the QB/trust entity: Provided. be penalized for P15. b.3 within thirty (30) business days from 17 May 2001 in cases of incumbent directors/trustees and at the time of election in cases of directors/ trustees elected after such date.31 Confirming Authority a. further. QBs/ trust entities shall furnish all of their directors/trustees with a copy of the specific duties and responsibilities of the board of directors/trustees prescribed under Items “b” and “c” of Subsec. Director/trustee. chief operating officer. That a person holding the position of chairman or vicechairman of the board or another position in the board shall not be considered as an officer unless the duties of his position in the board include functions of management such as those ordinarily performed by regular officers: Provided. and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . senior vice president and above or equivalent rank of QBs/trust entities whose election/ appointment is not subject to confirmation by the Monetary Board The election/appointment of all incumbent directors/trustees and officers of QBs/trust entities as of 17 September 2001 not previously approved/confirmed by the Monetary Board shall be submitted to the BSP through the appropriate department of the SES for confirmation. That members of a group or committee.A. 8791. Sec. trust officer and others mentioned as officers of the QB/trust entity.8 (Reserved) § 4141Q.000.4142Q 07. or have at least five (5) years creditable experience or training in financial management or related activities.4 . An officer shall have the following minimum qualifications: a. Included are: (1) Persons who refuse to fully disclose the extent of their business interest or any material information to the appropriate department of the SES when required pursuant to a provision of law or of a circular. diligence and experience/training. and which finding of the Monetary Board has become final and executory.31 c. (As amended by Circular No. He must be fit and proper for the position he is being proposed/appointed to. Q Regulations Part I . 4143Q Disqualification of Directors/ Trustees and Officers.Page 32 (4) Persons who have been judicially declared insolvent. Blg. or (7) Directors/trustees and officers of QBs or any person found by the Monetary Board to be unfit for the position of directors/trustees or officers because they were found administratively liable by another government agency for violation of banking laws. In determining whether a person is fit and proper for a particular position. both regular and special. and which finding of said government agency has become final and executory. § 4143Q. No. 22. embezzlement. No. falsification. bribery. competence. The foregoing qualifications for officers shall be in addition to those required or prescribed under R. Temporarily disqualified Directors/trustees/officers/employees disqualified by the Monetary Board from holding a director/trustee position for a specific/indefinite period of time.1 07.1 Persons disqualified to become directors/trustees. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees). theft. This disqualification shall be in effect as long as the refusal persists. (2) Directors/trustees who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings. memorandum.12. violation of Anti-Graft and Corrupt Practices Act and prohibited acts and transactions under Section 7 of R. spendthrift or incapacitated to contract. rule or regulation of the BSP. (6) Directors/trustees and officers of QBs found by the Monetary Board as administratively liable for violation of banking laws. extortion. forgery.P. malversation. violation of B. (3) Persons who have been convicted by final judgment of the court for violation of banking laws. the following are disqualified from becoming directors/trustees: a. Without prejudice to specific provisions of law prescribing disqualifications for directors/ trustees. The following regulations shall govern the disqualification of QB/trust entity directors/trustees and officers.4143Q. swindling. Permanently disqualified Directors/trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee position: (1) Persons who have been convicted by final judgment of a court for offenses involving dishonesty or breach of trust such as but not limited to. 8791 and other existing applicable laws and regulations. robbery. (5) Directors/trustees. 562 dated 13 March 2007) Sec. and directors/ trustees who failed to physically attend for Manual of Regulations for Non-Bank Financial Institutions .A. rules and regulations.§§ 4142Q . of the board of directors/trustees during their incumbency. rules and regulations where a penalty of removal from office is imposed. b.A. (2) Persons who have been convicted by final judgment of a court sentencing them to serve a maximum term of imprisonment of more than six (6) years. education. officers or employees of closed QBs who were found to be culpable for such institution’s closure as determined by the Monetary Board. the following matters must be considered: integrity/probity. estafa. rules and regulations or any offense/violation involving dishonesty or breach of trust. (4) Persons who have been convicted by a court for offenses involving dishonesty or breach of trust such as.A. a director/ trustee or officer. 4308Q. from the Monetary Board after Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . (7) Directors/trustees who failed to attend the special seminar for board of directors/trustees required under Item “c” of Subsec. 4306S and 4303P. (b) Obligations shall include all borrowings from a QB/trust entity/FI obtained by: (i) A director/trustees or officer for his own account or as the representative or agent of others or where he acts as a guarantor. (8) Persons dismissed from employment for cause. or his spouse is the managing partner or a general partner owning a controlling interest in the partnership. rules and regulations or those sentenced to serve a maximum term of imprisonment of more than six (6) years but whose conviction has not yet become final and executory. 22. but not limited to.P. (ii) The spouse or child under parental authority of the director/trustee or officer. extortion. X306. theft. and (v) A corporation. (5) Directors/trustees and officers of closed QBs/trust entities pending their clearance by the Monetary Board. bribery. embezzlement. indorser or surety for loans from such FIs. forgery. falsification. under different credit lines or loan contracts. violation of B. 4141Q. malversation. This disqualification shall be in effect as long as the delinquency persists. are past due pusuant to Secs. said directors/trustees shall be considered present in the board meeting. This disqualification applies until the director/trustee concerned had attended such seminar.1 07. This disqualification applies only for purposes of the immediately succeeding election. or at least two (2) obligations with other QBs/trust entities/FIs. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees).Page 33 . on their request. (6) Directors/trustees disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. except that when a notarized certification executed by the corporate secretary has been submitted attesting that said directors/trustees were given the agenda materials prior to the meeting and that their comments/decisions thereon were submitted for deliberation/discussion and were taken up in the actual board meeting. Blg. (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with a QB/trust entity where he is a director/trustee or officer. or used for the benefit of. (iii) Any person whose borrowings or loan proceeds were credited to the account of. “(ii)” and “(iv)”.12. violation of Anti-Graft and Corrupt Practices Act and prohibited acts and transactions under Section 7 of R. estafa. No. robbery. (iv) A partnership of which a director/ trustee or officer. swindling.§ 4143Q. association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items “(i)”.2.31 whatever reasons in at least twenty-five percent (25%) of all board meetings in any year. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate department of the SES of such directors’/trustees' election/re-election. violation of banking laws. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity or upon clearance. 31 showing good and justifiable reasons.1 shall likewise apply to officers. Philippine National Police (PNP). The disqualification shall be in effect during the period of suspension or so long as the fine is not fully paid. regardless whether the finding of the Monetary Board is final and executory or pending appeal before the appellate court. 584 dated 28 September 2007 and 513 dated 10 February 2006) § 4143Q. rules and regulations or any offense/ violation involving dishonesty or breach of trust. which was the basis of the derogatory record. rules and regulations where a penalty of suspension from office or fine is imposed. Except as may be authorized by the Monetary Board or the Governor. general manager. or on the official files of. and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of manager. (11) Directors/trustees and officers of QBs found by the Monetary Board as administratively liable for violation of banking laws. chief cashier or chief accountant is disqualified from holding or being elected or appointed to any of said positions in the same QB/trust entity. 4142Q and/or has any of the disqualifications mentioned under Subsecs. 4143Q. NBI. and (13) Directors/trustees and officers of QBs found by the Monetary Board as administratively liable for violation of Q Regulations Part I . the judiciary.Page 34 banking laws.1 .4143Q.1 and 4143Q. unless execution or enforcement thereof is restrained by the court.12. § 4143Q. (9) Those under preventive suspension. b.§§ 4143Q. or accountant of a branch or office of a QB/trust entity is disqualified from holding or being appointed to any of said positions in the same branch or office.2 Persons disqualified to become officers a. (10) Persons with derogatory records as certified by. and which finding of the Monetary Board is pending appeal before the appellate court. This disqualification applies until they have cleared themselves of the alleged irregularities/violations or after a lapse of five (5) years from the time the complaint. rules and regulations where a penalty of removal from office is imposed. monetary authorities and similar agencies or authorities of foreign countries for irregularities or violations of any law. 4143Q. president. cashier. quasi-judicial bodies. or after the lapse of five (5) years from the time they were officially advised by the appropriate department of the SES of their disqualification.2 shall not be Manual of Regulations for Non-Bank Financial Institutions . and which finding of said government agency is pending appeal before the appellate court. Director/trustee/officer elected or appointed who does not possess all the qualifications mentioned under Subsec.3 07. unless execution or enforcement thereof is restrained by the court.3 Effect of non-possession of qualifications or possession of disqualifications. (12) Directors/trustees and officers of QBs or any person found by the Monetary Board to be unfit for the position of director/ trustee or officer because they were found administratively liable by another government agency for violation of banking laws. except those stated in Items “b(2)” and “b(7)”. treasurer. the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of chairman. unless execution or enforcement thereof is restrained by the court. rules and regulations that would adversely affect the integrity of the director/trustee/officer or the ability to effectively discharge his duties. executive vice president or any position of equivalent rank. (As amended by Circular Nos. The disqualifications for directors/ trustees mentioned in Subsec. international police.2 and the last paragraph of Sec. was initiated. other government agencies. 4141Q. 12. c. Grounds for disqualification made known to the institution. (As amended by Circular No. e. must submit to the appropriate department of the SES a verified statement that he/she has all the aforesaid qualifications and none of the disqualifications. 513 dated 10 February 2006) § 4143Q. Upon receipt of the reply/ explanation of the director/trustee/officer concerned.4 and shall be removed from office even if he/she assumed the position to which he/she was elected or appointed. the concerned department of the SES shall make appropriate recommendation to the Monetary Board clearing said directors/trustees/officers Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .31 confirmed by the confirming authority under Subsec. 4141Q. restore it to its current status or. b. f. this shall be without prejudice to the authority of the Monetary Board to disqualify a director/trustee/officer/employee from being elected/appointed as director/trustee/ officer in any FI under the supervision of the BSP. before the evaluation on his disqualification and watchlisting is elevated to the Monetary Board. The board of directors/trustees and management of every institution shall be responsible for determining the existence of the ground for disqualification of the institution’s director/trustee/officer or employee and for reporting the same to the BSP. On the basis of knowledge and evidence on the existence of any of the grounds for disqualification mentioned in Subsecs. d. The director/trustee/officer concerned shall be afforded the opportunity to defend/clear himself/herself.4. The submission of verified statement will apply to directors/ trustees/officers elected/appointed after 14 March 2006. prior to assuming the position to which he/she was elected/ appointed.4 Disqualification procedures a. said failure to reply shall be deemed a waiver and the appropriate department of the SES shall proceed to evaluate the case based on available records/evidence. Director/trustee/officer. Confirmed director/ trustee/officer or officer not requiring confirmation possessing any of the disqualifications.§§ 4143Q.Page 35 .3 . the concerned director/trustee or officer shall be given a period of thirty (30) calendar days within which to settle said obligation or. While the concerned institution may conduct its own investigation and impose appropriate sanction/s as are allowable.1 and 4143Q. shall be reported to the appropriate department of the SES within seventy-two (72) hours from knowledge thereof. The head of said department may allow an extension on meritorious ground. the appropriate department of the SES shall proceed to evaluate the case.4 07. If no reply has been received from the director/trustee/officer concerned upon the expiration of the period prescribed under Item “b” above. If the ground for disqualification is delinquency in the payment of obligation. 4143Q. 4143Q. as enumerated in the abovementioned subsections shall be subject to the disqualification procedures provided under Subsec.4143Q. together with the evidence in support of his/her position. to explain why he/she should not be disqualified and included in the watchlisted file.2. For directors/trustees/officers of closed banks. the director/trustee or officer concerned shall be notified in writing either by personal service or through registered mail with registry return receipt card at his/her last known address by the appropriate department of the SES of the existence of the ground for his/her disqualification and shall be allowed to submit within fifteen (15) calendar days from receipt of such notice an explanation on why he/she should not be disqualified and included in the watchlisted file. he/she would be eligible to become director/ Manual of Regulations for Non-Bank Financial Institutions .2. j. g. when the ground for disqualification ceases to exist. l. The appropriate department of the SES may decide to recommend to the Monetary Board a penalty lower than disqualification Q Regulations Part I .”c” and “d” above. endeavor to establish the specific acts or omissions constituting the offense or the ultimate facts which resulted in the dismissal to be able to determine if the disqualification of the director/trustee/officer concerned is warranted or not. The board of directors/trustees of the concerned institution shall be immediately informed of cases of disqualification approved by the Monetary Board and shall be directed to act thereon not later than the following board meeting. h. the appropriate department of the SES shall.g. Directors/trustees/officers with pending cases/complaints shall also be included in said masterlist of temporarily disqualified persons upon approval by the Monetary Board until the final resolution of their cases. the corporate secretary shall report to the Governor of the BSP through the appropriate department of the SES the action taken by the board on the director/ trustee/officer involved. the concerned director/trustee/ officer shall be informed by the appropriate department of the SES in writing either by personal service or through registered mail with registry return receipt card. shall be afforded the procedural due process prescribed above. When there is evidence that a director/trustee/officer has committed irregularity. All other cases of disqualification. whether permanent or temporary shall be elevated to the Monetary Board for approval and shall be subject to the procedures provided in Items “a”. 4143Q. the appropriate department of the SES shall make recommendation to the Monetary Board that his/her case be referred to the Office of Special Investigation (OSI) for further investigation and that he/she be included in the masterlist of temporarily disqualified persons until the final resolution of his/her case. Persons who are elected or appointed as director/trustee or officer in any of the BSP-supervised institutions for the first time but are subject to any of the grounds for disqualification provided for under Subsecs.4 07. If the disqualification is based on dismissal from employment for cause. Upon approval by the Monetary Board.Page 36 (e. if the director/trustee/officer concerned is found to be responsible for the closure of the institution. k. Within seventy-two (72) hours thereafter.12.§ 4143Q.) if. the appropriate department of the SES shall recommend to the Monetary Board his/her delisting.”b”. in its judgment the act committed or omitted by the director/trustee/officer concerned does not warrant disqualification. the concerned department of the SES shall recommend to the Monetary Board his/her delisting from the masterlist of temporarily disqualified persons and his/her inclusion in the masterlist of permanently disqualified persons. reprimand. Whenever a director/trustee/officer is cleared in the process mentioned under Item “c” above or. at his/her last known address of his/her disqualification from being elected/ appointed as director/trustee/officer in any FI under the supervision of BSP and/or of his/her inclusion in the masterlist of watchlisted persons so disqualified.1 and 4143Q. etc. If the director/trustee/officer is cleared from involvement in any irregularity.. suspension. On the other hand. The evaluation of the case shall be made for the purpose of determining if disqualification would be appropriate and not for the purpose of passing judgment on the findings and decision of the entity concerned.31 when there is no pending case/complaint or evidence against them. as much as practicable. i. 4143Q. To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as director/trustee or officer of a bank. SES or the Governor or the Monetary Board. (As amended by Circular No. Watchlist files shall be for internal use only of the BSP and may not be accessed or queried upon by outside parties including banks.5 07.4 . d.Page 37 .4143Q. (2) Disqualification File “B” (Temporary) – Directors/trustees/officers/ employees temporarily disqualified by the Monetary Board from holding a director/ trustee/officer position. trust entity or such other agency/body where the concerned individual had derogatory record. Directors/trustees/officers/employees delisted from the Watchlist Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . It shall be the responsibility of the appropriate department of the SES to elevate to the Monetary Board the lifting of the disqualification of the concerned director/ trustee/officer and his/her delisting from the masterlist of watchlisted persons. BSP will disclose information on its watchlist files only upon submission of a duly accomplished and notarized authorization from the concerned person and approval of such request by the Deputy Governor. SES or the Governor or the Monetary Board. and (c) Upon favorable decision or clearance by the appropriate body. Watchlist categories. QB. QBs and trust entities except with the authority of the person concerned and with the approval of the Deputy Governor. c. b.5 Watchlisting.§§ 4143Q. NBI. bank. 584 dated 28 September 2007) § 4143Q. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist . breach of trust and/or violation of banking law becomes final and executory. Delisting. QB or trust entity.e. trust entity or any institution under the supervision of the BSP only upon prior approval by the Monetary Board. All delistings shall be approved by the Monetary Board upon recommendation of the operating departments of SES except in cases of persons known to be dead where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. QBs can gain access to information in the said watchlist for the sole purpose of screening their applicants for hiring and/or confirming their elected directors/trustees and appointed officers. court. BSP.4 included in the watchlist disqualification files “A” or “B”. Directors/trustees/officers/employees disqualified under Subsec. QB. in which case the director/trustee/officer/ employee is relisted to Watchlist– Disqualification File “A” (Permanent). the SES shall maintain a watchlist of persons disqualified to be a director/trustee or officer of such entities under its supervision under the following procedures: a. The prescribed authorization form to be submitted to the concerned department of SES is Appendix Q-45.Disqualification File “B” (Temporary) (a) After the lapse of the specific period of disqualification. Confidentiality. Watchlisting shall be categorized as follows: (1) Disqualification File “A” (Permanent) – Directors/trustees/officers/ employees permanently disqualified by the Monetary Board from holding a director/ trustee/officer position. QBs must obtain the said authorization on an individual basis. (b) When the conviction by the court for crimes involving dishonesty.12. Inclusion of directors/trustees/ officers/employees in the watchlist. i.31 trustee or officer of any bank.. and between a QB and an NBFI. QB/s. In order to safeguard against the excessive concentration of economic power. and (2) Without the need for prior approval of the Monetary Board. certain measures are still necessary to safeguard against the disadvantages that could result from indiscriminate concurrent directorship. QBs shall refer to investment houses. credit card companies. Interlocking directorships and officerships In order to prevent any conflict of interest resulting from the exercise of directorship coupled with the reinforcing influence of an officer’s decision-making and implementing powers. (As amended by CL-2007-001 dated 04 January 2007 and CL-2006-046 dated 21 December 2006) § 4143Q. a. (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder. foreigners cannot be officers or employees of financing companies.§§ 4143Q. trust entities. non-stock savings and loan associations (NSSLAs). and NBFI/s. lending investors. the following rules shall be observed. QB or trust entity.5 . or between a QB and a bank. QBs and NBFIs. securities dealers/brokers. Manual of Regulations for Non-Bank Financial Institutions .12. holding companies. (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder. For purposes of this Section. b. finance companies. finance companies. unfair competitive advantage or conflict of interest situations to the detriment of others through the exercise by the same person or group of persons of undue influence over the policymaking and/or management functions of similar FIs while at the same time allowing banks. a husband and his wife shall be considered as one (1) person. concurrent directorships between entities not involving an investment house shall be allowed in the following cases: (a) A QB and a bank without quasibanking functions. trust entities and all other NBFIs with quasi-banking functions while NBFIs shall refer to investment houses (IHs). asset management companies. there shall be no concurrent directorship and officership between QBs. Interlocking directorships While concurrent directorship may be the least prejudicial of the various relationships cited in this Section to the interests of the FIs involved. mutual building and loan associations. the following regulations shall govern interlocking directorships and/or officerships within the financial system consisting of banks. fund managers. QBs and NBFIs without quasibanking functions to benefit from organizational synergy or economies of scale and effective sharing of managerial and technical expertise.4144Q 07. government NBFIs. Q Regulations Part I .Page 38 venture capital corporations. there shall be no concurrent directorships between QBs or between a QB and a bank. Sec. investment companies. foreign exchange (FX) dealers. 4144Q Interlocking Directorships and/or Officerships.6 Prohibition against foreign officers/employees of financing companies Except in the case of technical personnel whose employment may be specifically authorized by the Secretary of Justice. and (b) A bank and one (1) or more of its subsidiary bank/s. For purposes of the foregoing. and (c) A QB and an NBFI. insurance agencies/brokers. money changers.31 – Disqualification File “B” other than those upgraded to Watchlist – Disqualification File “A” shall be eligible for re-employment with any bank. remittance agents and all other NBFIs without quasi-banking functions. pawnshops. insurance companies. or a corporation. That at least twenty percent (20%) of the equity of each of the banks. subject to prior approval of the Monetary Board. other than investment house/s. other than investment house/s: Provided. or (5) Between a bank and not more than two (2) of its subsidiary QB/s. For this purpose. internal auditors. QBs and NBFIs is owned by a holding company or by any of the banks/QBs within the group.12. (6) Concurrent officership position in the same capacity which do not involve management functions. Considering the full-time nature of officer positions. or his spouse or any of his relatives within the first degree of consanguinity or affinity or by legal adoption. including secondments. or (4) Between a bank and not more than two (2) of its subsidiary bank/s. subject to the following conditions: (a) that the positions do not involve any functional conflict of interests. chief executive officer.Page 38a . and NBFI/s.e. between QBs or between a QB and a bank or between a QB and an NBFI. (3) Between a QB and not more than two (2) of its subsidiary QB/s. assistant corporate secretary and security officer. other than an investment house. QB/s.§ 4144Q 07. QB/s and NBFI/s. association or firm wholly-or majorityowned or controlled by such officer or his relatives enumerated above. Interlocking officerships A concurrent officership in different FIs may present more serious problems of selfdealing and conflict of interest. other than investment house/s. and (d) that where any of the positions involved is held on full-time basis. may be allowed in the following cases: (1) Between a QB. the following rules shall be observed: As a general rule. and the need for effective and efficient management. QB/s. Multiple positions may result in poor governance or unfair competitive advantage. between a QB and one or more of its subsidiary QB/s and NBFI/s. corporate secretary. the difficulties of serving two (2) offices at the same time..and NBFI/s other than investment house/s. QB/s. However. concurrent officerships. does not own in his/its own capacity more than twenty percent (20%) of the subscribed capital stock of the entities in which the QB has equity investments. and NBFI/s. or between a QB. or between a bank and one or more of its subsidiary QBs and NBFIs. including secondments. and a bank. other than an investment house. or between a QB and an NBFI: Provided. and NBFI/s. shall be allowed. or (2) Between two (2) QBs. (c) that the officer involved. QBs or NBFIs is owned by a holding company or a QB/bank and the interlocking arrangement is necessary for the holding company or the QB/bank to provide technical expertise or managerial assistance to its subsidiaries/affiliates. and not more than two (2) of its subsidiary bank/s. adequate justification shall be submitted to the Monetary Board. secondment shall refer to the transfer/detachment of a person from his regular organization for temporary assignment elsewhere where the seconded employee remains the employee of the home employer although his salaries and other remuneration may be borne by the host organization. That at least twenty percent (20%) of the equity of each of the banks. (b) that any officer holding the positions of president. chief operating officer or chief financial officer may not be concurrently appointed to any of said positions or their equivalent. there shall be no concurrent officerships. and NBFIs. Aforementioned concurrent officerships may be allowed. i. c. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . concurrent directorship and officership between a bank and one (1) or more of its subsidiary bank/s. or between bank/s.31 (2) Without the need for prior approval of the Monetary Board. The QB may provide in its by-laws for other priorities in the computation of net profits for purposes of profit sharing: Provided. Q Regulations Part I .4146Q 07. net of the following: (1) All cumulative dividends accruing to preferred stock to the extent not covered by earned surplus. 4145Q Profit Sharing of Directors/ Trustees/Officers and Employees. (5) Income tax deferred for the year: Provided.Page 38b Sec. 592 dated 28 December 2007) § 4144Q. The election/appointment of directors/trustees and officers with the rank of senior vice-president and up shall require confirmation by the Monetary Board. as well as all amortizations due on deferred charges. 592 dated 28 December 2007) Sec. and b. however. That in case of reversal of deferred income taxes excluded from net income in previous years' profit sharings.31 For purposes of this Section. whose duties include functions of management such as those ordinarily performed by regular officers. It shall be the responsibility of the Corporate Governance Committee to conduct an annual performance evaluation of the board of directors/trustees and senior management. If the Monetary Board finds grounds for disqualification. no advice against said election/appointment has been received by the QB concerned. (As amended by Circular No. shall likewise be considered as officers. (As amended by Circular No. (2) Accrued interest receivable credited to income but not yet collected. (4) Provisions for the current year's taxes. the Committee should determine whether or not said director/trustee or officer is able to and has been adequately carrying out his/ her duties and. (6) Accumulated profits not yet received but already recorded by a QB representing its share in profits of its subsidiaries under the equity method of accounting. subject to the following guidelines: a. including sub-groups or sub-committees. as shown in its Consolidated Statement of Income and Expenses for the year. recommend changes to the board based upon said performance/review. if necessary.1 Representatives of government. The election/appointment of the directors/trustees and such officers shall be deemed to have been confirmed by the Monetary Board if after sixty (60) business days from receipt of the reports required in Appendix Q-3 by the BSP. (3) Unbooked valuation reserves on loans or an amount required to update valuation reserves in accordance with the schedule approved by the Monetary Board. 4146Q Monetary Board Confirmation of Directors/Trustees and Senior Officers. That in no case shall profit sharing take precedence over any of the items in the preceding paragraph.§§ 4144Q . When a director/trustee or officer has multiple positions. The provisions of this Subsection shall apply to persons appointed to such positions as representatives of the government or government-owned or controlled entities unless otherwise provided under existing laws.12. the director/trustee/ officer so elected/appointed may be removed from office even if he/she has Manual of Regulations for Non-Bank Financial Institutions . members of a group or committee. the deferred income tax reversed to expense shall be added back to net income to arrive at the basis for profit sharing for the year during which the reversal is made. Profit sharing programs adopted in favor of directors/trustees/officers and employees shall be reflected in the by-laws of QBs. The base in any profit sharing program shall be the net income for the year of the QB. net of reserves already set up for uncollected interest on loans. §§ 4146Q . the following cases: (1) Its capital is impaired. Except for the financial assistance to meet expenses for the medical. the Monetary Board may regulate/restrict the payment by the QB/trust entity of compensation.4147Q 05. but not limited to. and c. When the institution is found by the Monetary Board to be conducting business in an unsafe or unsound manner. the provision of Sec. In the presence of any one (1) or more of the circumstances mentioned above. conservatorship or when it has outstanding emergency loans and advances and such other forms of credit accommodation from the BSP which are intended to provide it with liquidity in times of need. allowances.Page 38c . but not limited to.31 assumed the position to which he/she was elected/appointed pursuant to Section 9-A of R. (3) Its composite CAMELS rating in the latest examination is below “3”. 337. the Monetary Board may impose the following restrictions in the compensation and other benefits of directors and officers: a. etc. No. To protect the funds of creditors. bonuses. (2) It has suffered continuous losses from operations for the past three (3) years.A. maternity.Page 39) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . profit sharing and fringe benefits to its directors/trustees and officers in exceptional cases and when the circumstances warrant. When the QB/trust entity is under controllership. stock options. the Monetary Board may order their reduction to reasonable levels: Provided. allowances. Sec. 4145Q shall be observed except that for purposes of this Section. c. it may nevertheless be allowed to grant relatively higher salary packages in (Next page is Part I . such as. the other forms of financial assistance may be suspended. When it is found by the Monetary Board to be in an unsatisfactory financial condition such as. fees. b. When the total compensation package including salaries. b. education and other emergency needs of the directors/trustees or officers or their immediate family. as amended. That even if a QB/trust entity is in financial trouble. 4147Q Compensation and Other Benefits of Directors/Trustees and Officers. In the case of profit sharing. and (4) It is under rehabilitation by the BSP/PDIC which rehabilitation may include debt-to-equity conversion. fees and bonuses of directors/trustees and officers are significantly excessive as compared with peer group averages. the following: a. the total amount of unbooked valuation reserves and deferred charges shall be deducted from the net income.12. 4149Q Conducting Business in an Unsafe/Unsound Manner. the Monetary Board. In determining whether a particular act or omission. No. stockholders. evident bad faith or gross inexcusable negligence. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .4149Q. or to the BSP. stability. or d. No. Sec. c. The Monetary Board may. 7653 and Section 56 of R. Whether a particular activity may be considered as conducting business in an unsafe or unsound manner.9 Sanctions. management. which is not otherwise prohibited by any law. The act or omission has caused any undue injury. whether or not the director or officer profited or will profit thereby.4149Q. No. but in no case to exceed P30. including evaluation of capital position.12. The act or omission has resulted or may result in material loss or damage. Fines in amounts as may be determined by the Monetary Board to be appropriate. creditors. asset condition.8 (Reserved) § 4149Q. investors. to be imposed on the quasi-bank/trust entity. all relevant facts must be considered. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institutions.1 . 8791. 8791 shall be deemed part of the benefits and compensation programs of quasi-banks/trust entities. impose any or all of the following sanctions provided under Section 37 of R. their directors and/ or responsible officers. rule or regulation affecting quasi-banks/trust entities.A. liquidity or solvency of the institution. 4148Q (Reserved) Sec.A.31 order to attract competent officers and quality staff as part of its rehabilitation program.A. shall consider any of the following circumstances: a. c. upon report of the head of the supervising or examining department based on findings in an examination or a complaint.Page 39 . The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the quasibank/trust entity.000 a day on a per transaction basis taking into consideration the attendant circumstances. Suspension of lending or foreign exchange operations or authority to accept new deposit substitutes and/or new trust accounts or to make new investments. such as the gravity of the act or omission and the size of the quasibank/trust entity. or has given unwarranted benefits. An analysis of the impact thereof on the quasi-bank’s/trust entity’s operations and financial conditions must be undertaken. or abnormal risk or danger to the safety.9 05.§§ 4147Q . The list of activities which may be considered unsafe and unsound is shown in Appendix Q-24. advantage or preference to the quasi-bank/trust entity or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality. at its discretion and based on the seriousness and materiality of the acts or omissions. or to the public in general. d. Suspension of responsible directors and/or officers. may be deemed as conducting business in an unsafe or unsound manner. earnings posture and liquidity position. whenever a quasi-bank/trust entity conducts business in an unsafe and unsound manner: a. b. b. Issue an order requiring the quasibank/trust entity to cease and desist from conducting business in an unsafe and unsound manner and may further order that immediate action be taken to correct the conditions resulting from such unsafe or unsound practice. §§ 4149Q. The foregoing provisions founded on Section 18 of R. Receivership and liquidation under Section 30 of R. § 4151Q. Ability to conduct operations from the head office as not to be a cause for Manual of Regulations for Non-Bank Financial Institutions . 4150Q Rules of Procedure on Administrative Cases Involving Directors and Officers of Quasi-banks. Q Regulations Part I . b. issuance or servicing of deposit substitutes for the quasi-bank.A. 7653. and/or f. shall also be applicable on the conduct of business in an unsafe or unsound manner. Profitability and capacity to absorb losses. agencies. 4151Q Establishment.Page 40 § 4151Q. The applicant has not complied with the ceilings on credit accommodations to DOSRI during the last sixty (60) days immediately preceding the date of application.31 e. such as: a.1 Evaluation guideposts.4151Q. All other provisions of Sections 30 and 37 of R. b. rules.5 Documentary requirements.§§ 4149Q.4 Conditions precluding processing of applications. are to be established shall depend upon the ability of the company to conduct operations from the head office. Revocation of quasi-banking license and/or trust authority. shall be used. The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34. including any arrangement whereby another person or entity is authorized to act as an agent for solicitation. Agency arrangements shall refer to all or any type of services to be performed by another party as an agent other than collection agency for loans payable in installments/amortization.The rate at which branches. 7653. No. The existence of any of the following conditions shall preclude/suspend the processing of the application: a. as shown in Appendix Q-2. § 4151Q. H. if required. § 4151Q. BRANCHES AND OTHER OFFICES Sec. etc. 35 and 36 of R. extension office or agency. The net worth of the applicant is found to be deficient during the last sixty (60) days immediately preceding the date of application. No. extension offices.A. whenever appropriate. Other requirements/factors to be considered are the applicant quasi-bank's general compliance with laws. and paying agency under a definite and specific period for purposes of redeeming long-term notes and/ or bonds. 7653. The applicant has incurred net deficiencies in reserves against deposit substitute liabilities during the last eight (8) weeks immediately preceding the date of application. All applications shall be supported by the following documents: a. based on criteria which consider expected growth of risk assets and capital accounts and for this purpose. An applicant quasi-bank may be required to put up additional capital in an amount to be determined by the appropriate SED of the BSP.5 05. Sec.2 Additional capital. § 4151Q. and policies of the BSP. Capital adequacy and solvency. the methods of computing such additional capital. Prior BSP authority shall be obtained before operating a branch.3 Other requirements/ factors to be considered.9 . No.A. Reserve and liquidity position. The rules of procedure on administrative cases involving directors and officers of quasi-banks are shown in Appendix Q-35. and regulations. and c.12. as well as correspondent/banking arrangements. and c. Correspondent banking and audit arrangements between the branch and the head office to ensure effective and efficient cash/money transactions. § 4161Q. investment houses. § 4161Q.4160Q (Reserved) J. QBs shall have a true and accurate account.7 Period within which to submit complete requirements. has been issued. No.A. It is in Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . c. Days and hours to be observed. Secs. § 4151Q. A copy of the application filed with the SEC. f. 4161Q Records.A. with the pertinent documents. b. and i. The making of any false entry or the willful omission of entries relevant to any transaction is a ground for the imposition of administrative sanctions under Section 37 of R. Certified true copy of the board resolution authorizing the establishment of a branch. No.4155Q (Reserved) I. an extension office or an agency shall be filed with the SEC. record or statement of their daily transactions. finance companies and pawnshops). 4152Q . after which the non-submission of complete documents shall cause the return of the application for the QB's lack of interest to pursue the same. without prejudice to the criminal liability of the director or officer responsible therefor under Sections 35 and 36 of R. § 4151Q. e.4161Q. d. No branch. (RESERVED) Secs. It is the policy of the BSP to promote fairness. Areas to be served.12. 7653 and/or the applicable provisions of the Revised Penal Code. h. § 4151Q. Bio-data of the proposed branch manager and organizational chart. Records shall be up-to-date and shall contain sufficient detail so that an audit trail is established. as well as any extension offices.§§ 4151Q.1 Uniform System of Accounts.8 Prohibition against operating without SEC license.31 delayed submission of reports to the BSP and/or recording of transactions in the head office. The applicant QB shall have one (1) month from notice of the receipt of the SEC referral by the appropriate department of the SES within which to submit/complete the requirements under this Section. Services to be offered. to be opened. 7653.6 Filing of applications Applications for a certificate of authority to operate a branch. Number of FIs in the area (banks. QBs shall strictly adopt/ implement the Uniform System of Accounts prescribed for QBs in the recording of daily transactions including reportorial and publication requirements. shall simultaneously be furnished the appropriate department of the SES for advance verification of the QB's compliance with the requirements under the provisions of Sec.2 Philippine Financial Reporting Standards/Philippine Accounting Standards Statement of policy. etc. 4156Q . 4151Q. which likewise serves as authorization for the branch/extension office/agency to perform quasi-banking functions. transparency and accuracy in financial reporting. which office shall refer the same to the appropriate department of the SES for comments and recommendations. RECORDS AND REPORTS Sec.5 . g.2 07.Page 41 . Business and/or economic justifications (including data) for the establishment of the branch. extension office or agency shall start operations unless the appropriate SEC license. b.§§ 4161Q. FIs shall be required to meet the BSP recommended valuation reserves. the present value of the future cash flows of the financial instrument discounted using the market interest rate). only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated on a lineby-line basis. and c.12. Manual of Regulations for Non-Bank Financial Institutions .e. Q Regulations Part I .31 this light that the BSP aims to adopt all Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS) issued by the Accounting Standards Council (ASC) to the greatest extent possible. The difference between the fair value and the net proceeds of the loan shall be recorded under “Unearned Income-Others”. However. the articles of incorporation. the audited annual financial statements required to be submitted to the BSP in accordance with the provision of Sec. including insurance subsidiaries/associates. FIs that adopted an accounting treatment other than the foregoing shall consider the adjustment as a change in accounting policy.2 . shall also be accounted for using the equity method. which shall be accounted for in accordance with PAS 8. by-laws. Any change in.Page 42 Government grants extended in the form of loans bearing nil or low interest rates shall be measured upon initial recognition at its fair value (i. “b” and “c”. Notwithstanding the exceptions in Items “a”. 4162Q Reports. QBs shall submit to the appropriate department of the SES the reports listed in Appendix Q-3 in the forms as may be prescribed by the Deputy Governor. financial/non-financial allied/non-allied subsidiaries/associates. 572 dated 22 June 2007) Sec. That FIs shall submit to the BSP adjusting entries reconciling the balances in the financial statements for prudential reporting with that in the audited annual financial statements. 4172Q shall in all respect be PFRS/PAS compliant: Provided. by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation. QBs/FIs shall adopt the PFRS and PAS which are in accordance with generally accepted accounting principles in recording transactions and in the preparation of financial statements and reports to BSP. For prudential reporting. the PFRS/PAS shall refer to issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). or amendment to. while insurance and nonfinancial allied subsidiaries shall be accounted for using the equity method. The provisions on government grants shall be applied retroactively to all outstanding government grants received. Accounting treatment for prudential reporting. Financial/non-financial allied/non-allied associates shall be accounted for using the equity method in accordance with the provisions of PAS 28 “Investments in Associates”. the option or limit prescribed by BSP regulations shall be adopted by FIs.4162Q 07. which shall be amortized over the term of the loan using the effective interest method. SES. FIs shall adopt in all respect the PFRS and PAS except as follows: a. In preparing consolidated financial statements. For purposes of preparing separate financial statements. (As amended by Circular No. For purposes hereof. or material documents to the appropriate department of the SES within fifteen (15) days following such change.. in cases where there are differences between BSP regulations and PFRS/PAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the PFRS/ PAS. and 7. or by sending them by registered mail or special delivery through private couriers unless otherwise specified in the circular or memorandum of the BSP. its subsidiaries or affiliates or related interests during the past three (3) years counted from the date of his/her election.1 Categories and signatories of reports.4162Q. hard copy of the covering control prooflist. CL-2007-050 dated 04 October 2007.12. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having been submitted. The submission of the reports shall be effected by filing them personally with the appropriate department of the SES or with the BSP Regional Offices/Units. or any other related documents required to be submitted shall be filed in the manner prescribed in the preceding paragraph. Complies with all the qualifications required of an independent director and does not possess any of the disqualifications therefor and has not withheld nor suppressed any information material to his/her qualification or disqualification as an independent director. Is not retained as professional adviser. Where the reports are prescribed by the BSP to be submitted through electronic mail. agent or counsel of the institution.2 Manner of filing. either in his/her personal capacity or through his/her firm. has not engaged and does not engage in any transaction with the institution or with any of its related companies or with any of its substantial shareholders. any of its related companies. 3. the bio-data shall be accompanied by a certification under oath from the director concerned that he/she is an independent director as defined under Subsec. is independent of management and free from any business or other relationship. Is not a majority stockholder of the institution. or of its majority shareholders. 560 dated 31 January 2007.2 07. any of its related companies or any of its substantial shareholders. any of its related companies or any of its substantial shareholders.1 that all the information thereby supplied are true and correct. 4. (As amended by Circular Nos. consultant. Reports required to be submitted to the BSP are classified into Categories A-1. 574 dated 10 July 2007. Is not acting as a nominee or representative of any director or substantial shareholder of the QB/trust entity.§§ 4162Q . officer or majority shareholder of the QB/trust entity or any of its related companies. and that he/she: 1. 576 dated 08 August 2007. other than transactions which are conducted at arms length and could not materially interfere with or influence the exercise of his/her judgment. 591 dated 27 December 2007.Page 43 . 2. legitimate or common-law of any director. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . 4141Q. the original notarized affidavit/last page of each report. A-2. Reports submitted by QBs in computer media shall be subject to the same requirements. 6. Is not a relative within the fourth degree of consanguinity or affinity. Is not a director or officer of the related companies of the institution’s majority stockholder. 5.31 In the case of the independent directors. CL-2007-059 dated 28 November 2007. Is not or has not been an officer or employee of the QB/trust entity. Appendix Q-4 prescribes the signatories for each report category and the requirements on signatory authorization. A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix Q-3. § 4162Q. whether by himself/ herself or with other persons or through a firm of which he/she is a partner or a company of which he/she is a director or substantial shareholder. and 557 dated 12 January 2007) § 4162Q. as well as the taking possession of the books and records and keeping them under the BSP's custody after giving proper receipt therefore. (2) Willful delay in the submission of reports shall refer to the failure of a QB to submit a report on time. audit. necessary and incidental to the use of EDP systems by the QB. the verification. including strike or lockout affecting a QB as defined in the Labor Code or national emergency affecting operations of QBs. but shall not be limited to. § 4162Q.Page 44 records shall include. Books and Q Regulations Part I . or obstructs the duly authorized BSP officer/examiner/employee from conducting an examination. For Categories A-1. Definition of terms. the BSP is strongly encouraging QBs to submit their regular reports to the BSP in electronic form. floods. (4) Refusal to permit examination shall mean any act or omission which impedes.12. A-2 and A-3 reports Per day of default until the report is filed II. such as fire and other natural calamities and public disorders. including the act of refusing to accept or honor a letter of authority to examine presented by any officer/examiner/employee of the BSP. logbooks and manuals kept and maintained by the QB or the EDP servicer. investigation and inspection of the books and records.A. The BSP will accept no responsibility for electronic messages/ reports/information that may be hacked or cracked. 8792 (E-Commerce Act). For purposes of this Subsection. copied or disclosed outside BSP’s information system. should the last day of filing fall on a nonworking day in the locality where the reporting FI is situated. business affairs.3 07. the following definitions shall apply: (1) Report shall refer to any report or statement required of a QB to be submitted to the BSP periodically or within a specified period. It shall also include the interview of the directors and personnel of the QB including its Electronic Data Processing (EDP) servicer. The due date/deadline for submission of reports to BSP as prescribed under Section 4162Q governing the frequency and deadlines indicated in Appendix Q-3 shall be automatically moved to the next business day whenever a halfday suspension of business operations in government offices is declared due to an emergency such as typhoon. shall not be considered as willful delay. but need not be limited to. For purposes of establishing delay or default. review. However. administration and financial condition of any QB including the reproduction of its records.3 Sanctions in case of willful delay in the submission of reports/refusal to permit examination a. No. However. data and information stored in magnetic tapes. Failure to submit a report on time due to fortuitous events. P600 For Category B reports Per day of default until the report is filed P120 Delay or default shall start to run on the day following the last day required for the submission of reports. Fines for willful delay in submission of reports. the BSP cannot presently guarantee the security/confidentiality of data in the course of transmitting electronic reports to BSP. the date of acknowledgment by the appropriate department of the SES or the BSP Regional Offices/Units appearing on Manual of Regulations for Non-Bank Financial Institutions . delay or default shall start to run on the day following the next working day.4162Q. printouts. b. QBs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. delays. BSP recommends that sensitive or confidential information be provided by ordinary post or courier.2 .31 In line with the policy direction of R.§§ 4162Q. etc. disks. (3) Examination shall include. intercepted. to examine any activity or entity of the institution. b. who shall forthwith make a written demand upon the concerned for such examination. 585 dated 15 October 2007) Sec.The imposition of the foregoing penalties shall be without prejudice to the imposition of the other administrative sanctions and to the filing of a criminal case as provided for in other provisions of law. (b) The fine shall be imposed starting on the day following the receipt by the said department of the written report submitted by the BSP officer/examiner/employee concerned regarding the continued refusal of the QB to permit the desired examination. f. (2) Procedures in imposing the fine(a) The BSP officer/examiner/employee shall report the refusal of the QB to permit examination to the head of the appropriate department of the SES. including the electronic information system and electronic banking services. 4164Q Internal Audit Function Internal audit is an independent. e.31 the copies of such reports filed or submitted.The regulations embodied in Sec. the BSP officer/examiner/ employee concerned shall submit a report to that effect to the said department head. or the date of the acknowledgment receipt issued by the appropriate office of the BSP if the reports were submitted through electronic mail. Delayed schedules/attachments and amendments shall be considered late reporting subject to the above penalties.4164Q. Other penalties . Review of the application and effectiveness of risk management procedures and risk assessment methodologies.Any QB which shall willfully refuse to permit examination shall pay a fine of P3. § 4164Q. as the case may be. the date of mailing postmarked on the envelope/the date of registry/special delivery receipt. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .Page 45 . Review of the management and financial information systems. (As amended by Circular No. objective assurance and consulting function established to examine.§§ 4162Q.000 daily from the day of refusal and for as long as such refusal lasts. evaluate and improve the effectiveness of risk management. c. If the QB continues to refuse said examination without any satisfactory explanation therefore. d. The Audit Committee or senior management should take all necessary measures to provide the appropriate resources and staffing that would enable internal audit to achieve its objectives.12. The scope of internal audit shall include: a. 4163Q (Reserved) Sec. It must be free to report audit results. Fines for refusal to permit examination (1) Amount of fine .2 Scope.1 Status. files or data whenever relevant to the exercise of its assignment. It shall have authority to directly access and communicate with any officer or employee. shall be considered as the date of filing by the QB. 4653Q shall be observed in the collection of the fines from QBs. Manner of payment or collection of fines . Examination and evaluation of the adequacy and effectiveness of the internal control systems. opinions. as well as to access any records. The internal audit function must be independent of the activities audited and from day-to-day internal control process. and governance processes of an organization.3 . findings. internal control. c. Appeal to the Monetary Board Any aggrieved QB may appeal to the Monetary Board a ruling of the appropriate department of the SES imposing a fine. § 4164Q. appraisals and other information to the appropriate level of management.2 07. §§ 4164Q.) and other supplemental standards issued by regulatory authorities/ government agencies. senior auditor or audit manager. Review of the compliance system and the implementation of established policies and procedures. The internal auditor of a UB or a KB must be a Certified Public Accountant (CPA) and must have at least five (5) years experience in the regular audit (internal or external) of a UB or KB as auditor-in-charge.org. Transaction testing and assessment of specific internal control procedures. trust entity or national Coop Bank must be a CPA with at least five (5) years experience in the regular audit (internal or external) of a TB. senior auditor or audit manager.4 Code of Ethics and Internal Auditing Standards. senior auditor or audit manager or. trust entity Q Regulations Part I .org. g. and h. These Manual of Regulations for Non-Bank Financial Institutions . trust entities. subsidiaries and affiliates engaged in allied activities. A qualified internal auditor of a TB or national Coop Bank shall likewise be qualified to audit QBs. He must possess the knowledge. RBs. NSSLA or local Coop Bank must be at least an accounting graduate with two (2) years experience in external audit or in the regular audit of an RB. subsidiaries and affiliates engaged in allied activities. NSSLAs. e. Web: http:// www. Professional competence as well as continuing training and education shall be required to face up to the increasing complexity and diversity of the institution’s operations. 4171Q Internal Control Systems. national Coop Banks.Page 46 or national Coop Bank as auditor-in-charge.31 d. The standards address independence and objectivity. The minimum internal control standards established in Appendix Q-5 shall guide all QBs. quality assurance reviews. NSSLAs. Assessment of the accuracy and reliability of the accounting system and of the resulting financial reports. local Coop Banks. A qualified internal auditor of a UB or a KB shall be qualified to audit TBs. Review of the systems and procedures of safeguarding assets. RBs. senior auditor or audit manager. QB.3 Qualification standards of the internal auditor. and other FIs under BSP supervision. The internal auditor of an RB.4170Q (Reserved) K. Records showing compliance with independent balancing procedures.12. QBs. such as the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing (e-mail: standards@theiia. in lieu thereof. a. at least one (1) year experience in the regular audit (internal or external) of a UB. at least three (3) years experience in the regular audit (internal or external) of a QB as auditor-incharge. local Coop Banks. The internal auditor of a TB. professional proficiency. NSSLA or local Coop Bank or. and other competencies to examine all areas in which the institution operates. Review of the system of assessing capital in relation to the estimate of organizational risk. QB. § 4164Q. The internal auditor should conform with the Code of Professional Ethics for CPAs and ensure compliance with sound internal auditing standards. KB. 4165Q . trust entity or national Coop Bank as auditor-in-charge. scope of work. communication and monitoring of results. and other FIs under BSP supervision. TB. skills. Secs.theiia. trust entities. The following records/data shall be compiled and made available for the inspection of BSP examiners. § 4164Q.2 . f. QB. in lieu thereof. management of internal audit. performance of audit work. INTERNAL CONTROL Sec.4171Q 05. c. Statements of actual duties of persons assigned to handle cash and securities. d.12. All internal control audit reports or their equivalent. partnership or (Next page is Part I .§ 4171Q 05.Page 46a . b.31 records should indicate the accounts and the periodic balancing procedures performed.Page 47) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . Information/data on the direct and/ or indirect equity holdings and/or connection with any firm. Page 47 . in the normal course of performing their assigned functions. logs on the operations of mainframes and peripherals. hardware control and such other EDP control standards prescribed by the BSP in separate rules and regulations. output control. AFS shall include the balance sheets. Information/data pertaining to electronic data processing (EDP) department or service bureau of the QB particularly on organization. a LOC indicating any material weakness or breach in the institution’s internal control and risk management systems within thirty (30) calendar days after submission of the financial audit report. Material weakness shall be defined as a significant control deficiency. 4172Q Audited Financial Statements of Quasi-Banks. The report to the BSP shall be accompanied by the: (1) certification by the external auditor on the: (a) dates of start and termination of audit. Financial Audit. income statements. statements of cash flows and notes to financial statements which shall include among other information. input control. (b) date of submission of the financial audit report and certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the QB to the board of directors. and (c) the absence of any direct or indirect financial interest and other circumstances that may impair the independence of the external auditor. A control deficiency exists when the design or operation of a control does not allow management or employees. and (3) other information that may be required by the BSP. The following rules shall govern the utilization and submission of AFS of QBs. For purposes of this Section. and major stockholders. the external auditor shall be required by the QB to submit to the board of directors. In addition. that results in more than a remote likelihood that a material misstatement of the financial statements will not be detected or prevented by the institution’s internal control. financial audit report shall refer to the AFS and the opinion of the auditor. software. A material weakness does not mean that a material misstatement has occurred or will occur. QBs shall cause an annual financial audit by an external auditor acceptable to the BSP not later than thirty (30) calendar days after the close of the calendar year or the fiscal year adopted by the QB. Report of such audit shall be submitted to the board of directors and the appropriate department of the SES not later than 120 calendar days after the close of the calendar year or the fiscal year adopted by the QB. The AFS of QBs with subsidiaries shall be presented side by side on a solo basis (parent) and on a consolidated basis (parent and subsidiaries). On the other hand.12. (2) reconciliation statement between the AFS and the balance sheet and income statement for the QB and trust department submitted to the BSP including copies of adjusting entries on the reconciling items. to prevent or detect misstatements on a timely basis. together with the financial audit report. Sec. or combination of deficiencies.4172Q 06. of all the institution's directors. A significant deficiency Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .31 corporation organized for profit. 4141Q and 4142Q. If no material weakness or breach is noted to warrant the issuance of an LOC. program and documentation standards. officers. as defined under Secs.§§ 4171Q . but that it could occur. statements of changes in equity. processing control. disclosure of the volume of past due loans as well as loanloss provisions. a certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the QB shall be submitted in its stead. e. at the expense of the QB: Provided. the Monetary Board may. among other things. Government-owned or -controlled banks. but not limited to loans from multilateral financial institutions. process. or report financial data reliably in accordance with generally accepted accounting principles. submit a copy of the annual audit report (AAR) of the COA to the appropriate department of the SES of the BSP within thirty (30) banking days after receipt of the report by the board of directors. including their subsidiaries and affiliates. (2) reconciliation statement between the AFS in the AAR and the balance sheet and income statement of the QB and trust department submitted to the BSP. including the comments and observations and the names of the directors present and absent. privatization. that adversely affects the institution’s ability to initiate. The resolution shall show the action(s) taken on the findings and recommendations and the names of the directors present and absent. among other things. record. authorize. The board shall likewise consider and act on the LOC and shall submit.§ 4172Q 06. The resolution shall show. within thirty (30) banking days after receipt of the report. The AFS required to be submitted shall in all respect be PFRS/PAS compliant: Provided. The board of directors of said institutions.Page 48 the financial audit to be conducted by an external auditor acceptable to the BSP. require Q Regulations Part I . a copy of its resolution to the appropriate department of the SES. and (3) other information that may be required by the BSP. Manual of Regulations for Non-Bank Financial Institutions . a copy of its resolution together with said LOC to the appropriate department of the SES. as well as other financial institutions under BSP supervision which are under the concurrent jurisdiction of the Commission on Audit (COA) shall be exempt from the aforementioned annual financial audit by an acceptable external auditor: Provided. in a regular or special meeting. The term more than remote likelihood shall mean that future events are likely to occur or are reasonably possible to occur. a copy of its resolution to the appropriate department of the SES. however. as well as on the comments and observations and shall submit. That when circumstances such as. the actions(s) taken on the reports and the names of the directors present and absent. further. The LOC shall be accompanied by the certification of the external auditor of the date of its submission to the board of directors. including copies of adjusting entries on the reconciling items. among other things. or combination of control deficiencies. The AAR shall be accompanied by the: (1) certification by the institution concerned on the date of receipt of the AAR by the board of directors. That when warranted by supervisory concern such as material weakness/breach in internal control and/ or risk management systems. shall consider and act on the AAR. upon recommendation of the appropriate department of the SES. QBs and other financial institutions under the concurrent jurisdiction of the BSP and COA shall. The resolution shall show the action(s) taken on the report. or public listing warrant.31 is a control deficiency. within thirty (30) banking days after receipt thereof.12. the financial audit of the QB concerned by an acceptable external auditor may also be allowed. within thirty (30) banking days after receipt of the reports. in a regular or special meeting. shall consider and act on the financial audit report and the certification under oath submitted in lieu of the LOC and shall submit. The board of directors. That financial institutions shall submit to the BSP adjusting entries reconciling the balances in the financial statements for prudential reporting with that in the audited annual financial statements. The disclosure of information by the external auditor to the BSP shall not be a ground for civil. (As amended by Circular Nos. Findings to be disclosed. percent of past due DOSRI loans to total DOSRI loans and percent of non-performing DOSRI loans to total DOSRI loans. Nature and amount of contingencies and commitments arising from off-balance sheet items [include direct credit substitutes (e. QBs shall require their external auditors to report to the BSP any matter adversely affecting the condition or soundness of the bank.3. Basic quantitative indicators of financial performance such as return on average equity. schedules and attachments required under this Subsec. return on average assets and net interest margin. export LCs confirmed. 554 dated 22 December 2006 and 540 dated 09 August 2006) § 4172Q. as well as in their respective web-sites. QBs shall not be allowed to engage the services of the blacklisted auditing firm. criminal or disciplinary proceedings against the former. Capital-to-risk assets ratio under Sec. but not limited to: (1) Any serious irregularity. Sanction. QB management shall be present during discussions or at least be informed of the adverse findings in order to preserve the concerns of the supervisory authority and external auditors regarding the confidentiality of information. standby Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . delayed submission of which shall be subject to the penalties under Subsec.4172Q. § 4172Q. including those involving fraud or dishonesty.§§ 4172Q . shall be considered Category B reports. 4116Q. 4162. f. underwritten accounts unsold). Total outstanding loans to QB’s DOSRI. c.Q. Concentration of credit as to industry/economic sector where concentration is said to exist when total loan exposures to a particular industry/ economic sector exceeds thirty percent (30%) of total loan portfolio. bid bonds. (2) Losses incurred which substantially reduce the capital funds of the QB.2 Disclosure of external auditor’s adverse findings to the Bangko Sentral. such as. all their branches and other offices. QBs shall require their external auditors to include the following additional information in the notes to financial statements: a.12. sanction a. d.3 Disclosure requirement in the notes to the audited financial statements.. transaction-related contingencies (e. b. e.b.3 06. that may jeopardize the interest of creditors. Breakdown of total loans as to secured and unsecured and breakdown of secured loans as to type of security.Page 49 .. performance bonds.g.II. and (3) Inability of the auditor to confirm that the claims of creditors are still covered by the QB’s assets. (As amended by Circular No. QBs shall post in conspicuous places in their head offices.1 Posting of audited financial statements. The auditing firm(s) shall be blacklisted by the Monetary Board for a period as the Board may deem appropriate for their failure to perform their duty of reporting to the BSP any matter adversely affecting the condition or soundness of the QB.31 QBs as well as external auditors shall strictly observe the requirements in the submission of the financial audit report and reports required to be submitted under Appendix Q-33. percent of DOSRI loans to total loan portfolio.g. their latest financial audit report. The reports and certifications of QBs. 540 dated 9 August 2006) § 4172Q. b. percent of unsecured DOSRI loans to total DOSRI loans. and i. legal and other risks). and other commitments].5 Posting and submission of annual report. A copy of the latest annual report shall be posted by the QB in a conspicuous place in its head office.31 LCs). § 4172Q. etc. repurchase agreements. sight/usance domestic LCs. incentive structure including its remuneration policies. short-term self-liquidating traderelated contingencies arising from the movement of goods (e. operational.4179Q (Reserved) Manual of Regulations for Non-Bank Financial Institutions . Provisions and allowances for losses and how these are determined. foreign currency translations. c. sight/usance import LCs). d. and e. h.. valuation policies and accounting policies on securitizations. in addition to the AFS and other usual information contained therein. Financial performance. Net Interest = Net Interest Income x 100 Margin (%) Average Interest Earning Assets Q Regulations Part I . derivatives. Accounting policies which shall include. 4173Q .§§ 4172Q. policies and methods for determining when assets are impaired. For purposes of computing the indicators in Item “a” above.g. The deadline for the submission of the annual report to the appropriate department of the SES is 180 calendar days after the close of the calendar or fiscal year adopted by the QB. all its branches and other offices. Return on Average = Net Income (or Loss) after Equity (%) Income Tax x 100 Average Total Capital Accounts Where: Average Total = Sum of Total Capital Accounts as of the Capital Accounts 12 month-ends in the calendar/fiscal year adopted by the QB 12 b. premiums and discounts. sale and repurchase agreements not recognized in the balance sheet. risk management system and structure. but shall not be limited to. premises/fixed assets. market. principles of consolidation.ends in the calendar/fiscal year adopted by the QB 12 c. changes in accounting policies/practices. nature and extent of transactions with affiliates and related parties. Return on Average = Net Income (or Loss) after Assets (%) Income Tax x 100 Average Total Assets Where: Average Total Assets = Sum of Total Assets as of the 12 month.4 Disclosure requirements in the annual report.3 . Secs. liquidity. Basic business management and corporate governance information such as the QB’s organizational structure. income taxes. general accounting principles. Aggregate amount of secured liabilities and assets pledged as security. recognizing income on impaired assets and losses on non-performing credits. the following formulas shall be used: a. loan fees. a discussion and/or analysis of the following information: a.4179Q 05.12. b. QBs shall prepare an annual report which shall include.Page 50 Where: Net Interest Income = Total Interest Income – Total Interest Expense Average Interest = Sum of Total Interest Earning Assets as Earning Assets of the 12 month-ends in the calendar/ fiscal year adopted by the QB 12 § 4172Q. g. Qualitative and quantitative information on risk exposures (credit. Overall risk management philosophy (a general statement of the risk management policy adopted by the QB’s board of directors which serves as the basis for the establishment of its risk management system). income recognition. Financial position and changes therein. interest and foreign exchange rate related items. MISCELLANEOUS PROVISIONS Sec. the external auditors’ report did not comply with BSP requirements. trust entities and/or NSSLAs to ensure effective audit and supervision of these institutions and to avoid unnecessary duplication of efforts. the BSP hereby prescribes the rules and regulations that shall govern the selection. QBs.31 Sec. QBs. (As amended by Circular No. It is the policy of the BSP to promote high ethical and professional standards in public accounting practice and to encourage coordination and sharing of information between external auditors and regulatory authorities of banks. In furtherance of this policy and to ensure that reliance by regulatory authorities and the public on the opinion of external auditors is well placed.12. QBs. their subsidiaries and affiliates engaged in allied activities are shown in Appendix Q-30. a. Rules and regulations. if based on assessment. trust entities and/or NSSLAs. No.Page 51 . The BSP will circularize to all banks. however. BSP selected external auditors shall apply for the renewal of their selection every three (3) years. appointment. inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. QBs. trust entities and NSSLAs or for hiring. 8791. R. The provisions of Items “A” and “B” of Appendix Q-30 shall likewise apply for each application for renewal. The applicable sanctions/ penalties prescribed under Sections 36 and 37 of R. reporting requirements and delisting for external auditors of banks. Appointment and Reporting Requirements for External Auditors. Under Section 58. its audit committee and the directors approving the hiring of external auditors who are not in the BSP list of selected auditors for banks. Effectivity. 529 dated 11 May 2006) L. Sanction. 4181Q Publication Requirements The quarterly consolidated statement of condition of a QB/trust entity and its subsidiaries and associates shall be Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks. QBs. External auditors who meet the requirements specified in this Section shall be included in the list of BSP selected external auditors.A. b. 7653 to the extent applicable shall be imposed on the QB or trust entity. In case of partnership. Erring external auditors may also be reported by the BSP to the PRC for appropriate disciplinary action.year renewal period. A.4181Q 06. 4180Q Selection. the Monetary Board may require a QB and/or trust entity to engage the services of an independent auditor to be chosen by the QBs and/or trust entities concerned from a list of certified public accountants acceptable to the Monetary Board.§§ 4180Q . Sanctions. No. The rules and regulations to govern the selection and delisting by the BSP of external auditors of QBs and/or trust entities. trust entities or NSSLAs for regular audit or special engagements. The BSP. and/or retaining the services of the external auditor in violation of any of the provisions of this Section and for noncompliance with the Monetary Board directive under Item “I” in Appendix Q-30. trust entities and NSSLAs the list of selected external auditors once a year. their subsidiaries and affiliates engaged in allied activities and other financial institutions which under special laws are subject to BSP supervision. The selection of external auditors shall be valid for a period of three (3) years. The SES shall make an annual assessment of the performance of external auditors and will recommend deletion from the list even prior to the three (3). The following information shall be disclosed in the Statements of Condition: (1) Non-performing loans and ratio to total loan portfolio. and (2) president and executive vicepresidents (senior vice-presidents. 4182Q Management Contracts Subject to existing laws. 4190Q Duties and Responsibilities of Quasi-Banks and their Directors/ Officers in All Cases of Outsourcing of Quasi-Banking Functions. within twenty (20) working days from receipt of call letter. The compliance system shall have the following basic elements.Page 52 (1) members of the board of directors.31 published side-by-side with the statement of condition of its head office and its branches/other offices as of such dates as the BSP may require. 548 dated 25 September 2006 and 543 dated 08 September 2006) Sec. while insurance and non-financial allied subsidiaries shall be accounted for using the equity method. Compliance Officer. only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated on a line-by-line basis.§§ 4181Q . The consolidated statement of condition of a QB/trust entity and its subsidiaries and associates shall conform with the guidelines of PAS 27 “Consolidated and Separate Financial Statements”. except that for purposes of consolidated financial statements.1 Compliance system. Existing agreements shall be allowed up to the termination date thereof: Provided. a. QBs shall develop and implement a compliance system and appoint/designate a compliance officer to oversee its implementation. including insurance subsidiaries/associates. The agreements referred to in the preceding paragraph shall not be entered into for a period longer than five (5) years. all agreements whereby the affairs or operations of a QB will be carried out by another corporation. a. in any newspaper of general circulation in the country in the prescribed format. 4191Q Compliance System.1 08. (2) Classified loans and other risk assets. The rules on outsourcing of banking functions as shown in Appendix Q-37 shall be adopted in so far as they are applicable to QBs. 610 dated 26 May 2008. shall be subject to prior approval by the BSP.4191Q. Sec. (3) General loan loss reserve. the guidelines in Annex Q-3-f of Appendix Q-3 shall be observed. and (7) Past due DOSRI loans/advances and ratio to total loan portfolio. if there are no executive vice-presidents) or equivalent positions shall be presented in the right side column of the published statement of condition as of June of every year.12. Secs. 596 dated 11 January 2008. § 4191Q. (As amended by Circular Nos. For uniform calculation of the additional information required.4189Q (Reserved) Sec. b. Financial/non-financial allied/non-allied associates shall be accounted for using the equity method in accordance with the provisions of PAS 28 “Investments in Associates”. (6) DOSRI loans/advances and ratio to total loan portfolio. however. A written compliance program approved by the board of directors: Manual of Regulations for Non-Bank Financial Institutions . For purposes of separate financial statements. The names and positions/ designations of: Q Regulations Part I . investments in financial/non-financial allied/non-allied subsidiaries/associates. (4) Specific loan loss reserve. person or group of persons. (5) Return on equity (ROE). That any renewal or extension upon termination date shall be subject to approval by the BSP. shall be accounted for using the equity method. 4183Q . Testing frequency shall be commensurate with identified risk levels (e. The internal auditor of a QB may also be designated as its compliance officer Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . (3) The program shall establish the responsibilities and duties of the compliance officer and other personnel (if any) involved in the compliance function. b. annual testing for low-risk.2 Compliance officer a. The compliance program may operate parallel to or as part of a QB’s internal control and auditing program.12. A constructive working relationship with regulatory agencies.31 (1) The compliance program shall enable the QB to identify the relevant Philippine laws and regulations. low. The bio-data of the proposed compliance officer shall be submitted to the appropriate department of the SES.1 . It shall also provide for the reporting of compliance findings noted to appropriate levels of management. A clear and open communication process within the QB to educate and address compliance matters. c. medium. distribution of manuals and dissemination of regulatory issuance. b. (2) The program shall provide for periodic compliance testing with applicable legal and regulatory requirements.4191Q. monitoring and controlling of compliance risk. The principal function of the compliance officer is to oversee and coordinate the implementation of the compliance system.Page 53 . For QBs with total resources of below P500 million.§§ 4191Q. The program shall provide for the periodic review of the compliance function to measure its effectiveness. The review may be carried out by the internal audit department of the QB.g. The QB. His responsibility shall include the identification. Continuous monitoring and assessment of the compliance program. QBs with total resources of P500 million and above shall appoint an independent full-time compliance officer. d. monthly testing for high-risk)... § 4191Q. high). d. A dialogue may also be initiated with respect to borderline issues. may consult the regulatory agencies for additional clarification on specific provisions of laws and regulations and/or discuss compliance findings with the regulatory authorities. (5) The program shall be updated at least annually to incorporate changes in laws and regulations. (4) A copy of the compliance program and the written approval of the board of directors shall be submitted to the appropriate department of the SES within twenty (20) business days from date of approval. e. analyze the corresponding risks of non-compliance. That such designation will not give rise to any conflict of interest situation and that the main function of the senior officer shall be that of a compliance officer. Any changes in the program shall likewise be approved by the QB’s board of directors and submitted to BSP within twenty (20) business days from the date of approval. The appointment/designation of a compliance officer shall require prior approval of the Monetary Board. The compliance officer shall have the skills and expertise to provide appropriate guidance and direction to the bank on the development.g. through its compliance officer. an incumbent senior officer may be designated concurrently as the QB’s compliance officer: Provided. quarterly testing for medium-risk. who shall have a rank of at least a vice president or its equivalent. and prioritize the compliance risks (e.2 08. c. Officers and staff shall be trained on the regulatory requirements through regular meetings. implementation and maintenance of the compliance program. or loss to reputation a QB may suffer as a result of its failure to comply with all applicable laws.6 08. (4) its right to obtain access to information necessary to carry out its responsibilities.4 Responsibilities of the board of directors and senior management on compliance. (5) its right to conduct investigations of possible breaches of the compliance policy. The report should assist the board members in making an informed assessment as to whether the institution is managing its compliance risk effectively.31 subject to the condition that his main function shall be that of a compliance officer. authority and independence. report to the board of directors or a committee of the board on matters relevant to the compliance policy and its implementation.4191Q. at least once a year. (As amended by Circular No. (3) its relationship with other functions or units within the organization. Senior management should.3. § 4191Q. rules and standards discovered. The compliance function should have a formal status within the organization established by a charter or other formal document approved by the board of directors that defines the compliance function’s standing. (6) its formal reporting relationships to senior management and the board of directors.5 Status. Aside from the duties and responsibilities of the board of directors mentioned under Subsec. 598 dated 11 January 2008) § 4191Q. 4141Q. regulations.3 Compliance risk Compliance risk is the risk of legal or regulatory sanctions. the board should oversee the implementation of the compliance policy and ensure that compliance issues are resolved expeditiously. rules and standards shall be reported promptly. Transitory provision. any material breaches of laws. The compliance charter or other formal document defining the status of the compliance function shall be communicated throughout the organization. § 4191Q. Compliance officers concurrently holding the position of Head of Internal Audit or Internal Auditor shall be given one (1) year from 02 February 2008 within which to comply with this Subsection. However. recommending any required changes to the policy. without Manual of Regulations for Non-Bank Financial Institutions . It should be able to carry out its responsibilities on its own initiative in all units or departments where compliance risk exists and must be provided with sufficient resources to carry out its responsibilities effectively. Senior management should be responsible for establishing a compliance policy. reporting to the board of directors on its ongoing implementation and assessing its effectiveness and appropriateness. The compliance function should be independent from the business activities of the institution. and addresses the following issues: (1) measures to ensure the independence of the compliance function from the business activities of the QB.2 . It must be free to report to senior management and the board or a committee of the board on any irregularities or breaches of laws. Q Regulations Part I . financial loss.§§ 4191Q.6 Independence.12.Page 54 § 4191Q. and (7) its right of direct access to the board of directors or an appropriate committee of the board. ensuring that it is observed. codes of conduct and standards of good practice. (2) its role and responsibilities. The role and responsibilities of the compliance function should be clearly defined.7 05.Page 55) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I .4191Q. If there is a division of duties and responsibilities between different functions such as legal.31 fear of retaliation or disfavor from management or other affected parties. § 4191Q.12.§§ 4191Q. (Next page is Part I .Page 54a .7 Role and responsibilities of the compliance function.6 . The compliance function should have access to all operational areas as well as any records or files necessary to enable it to carry out its duties and responsibilities. including default. (Circular No. The framework for the enforcement of prompt corrective action (PCA) on banks which is in Appendix Q-40.8 Cross-border issues.31 compliance. 523 dated 23 March 2006) Sec. QBs should establish policies for managing the risks associated with outsourcing activities. must be submitted to the appropriate department of the SES at least thirty (30) days prior to its execution to enable review of its compliance with existing regulations on outsourcing of quasi-banking functions. or by analogy. The guidelines on market risk management in Appendix Q-43 set forth the expectations of the BSP with respect to the management of market risk and are intended to provide Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part I . Compliance risk assessment and testing may be outsourced. measure. That a copy of the outsourcing agreement stating the duties and responsibilities as well as rights and obligations of the contracting parties. the outsourcing QB should manage residual risks associated with outsourcing arrangements.4194Q 06. operational failures.12. monitor and control risks are shown in Appendix Q-42.7 . The service level agreement shall ensure a clear allocation of responsibilities between the external service providers and the QB. 4194Q Market Risk Management.§§ 4191Q. 4192Q Prompt Corrective Action Framework.9 Outsourcing.Page 55 . the allocation of duties and responsibilities to each function should be properly delineated. As there are significant differences in legislative and regulatory frameworks across countries or from jurisdiction to jurisdiction. There should likewise be formal arrangements for cooperation between each function and for the exchange of relevant information. subject to appropriate oversight by the compliance officer: Provided. The guidelines on supervision by risk to provide guidance on how QBs should identify. The organization and structure of the compliance function and its responsibilities should be in accordance with local legal and regulatory requirements. compliance issues specific to each jurisdiction should be coordinated within the structure of the institution’s group-wide compliance policy. The BSP will review the risks to ensure that a QB’s internal risk management processes are integrated and comprehensive. shall govern the PCA taken on QBs to the extent applicable. The compliance function for institutions that conduct business in other jurisdictions should be structured to ensure that local compliance concerns are satisfactorily addressed within the framework of the compliance policy for the organization as a whole. the use of third parties does not diminish the responsibility of the board of directors and senior management to ensure that the outsourced activity is conducted in a safe and sound manner and in compliance with applicable laws and regulations. § 4191Q. 510 dated 19 January 2006) Sec. All QBs should follow the guidance in their risk management efforts. The guidelines set forth the expectations of the BSP with respect to the management of risks and are intended to provide more consistency in how the risk-focused supervision function is applied to these risks. Outsourcing of services/activities can reduce the institution’s risk profile by transferring activities to others with the necessary expertise to manage the risks associated with specialized business activities. which agreement shall be approved by the board of directors of the institution concerned. and possible disruption of services. Furthermore. § 4191Q. 4193Q Supervision by Risks. (Circular No. However. internal audit or risk management. Sec. 7653 on QBs. monitor and control risks.31 more consistency in how the risk-focused supervision function is applied to this risk. specific application will depend to some extent on the size. QBs are expected to have an integrated approach to risk management to identify. specific application will depend on the size and sophistication of a particular QB and the nature and complexity of its activities.4199Q 06. 544 dated 15 September 2006) Sec. (Circular No.The guidelines on liquidity risk management in Appendix Q-44 set forth the expectations of the BSP with respect to the management of liquidity risk and are intended to provide more consistency in how the risk-focused Q Regulations Part I .A.§§ 4194Q .12. Liquidity risk should be reviewed together with other risks to determine overall risk profile. 4199Q General Provision on Sanctions. A. QBs are expected to have an integrated approach to risk management to identify. monitor and control risks. complexity and range of activities undertaken by individual QBs. their directors and/ or officers are shown in Appendix Q-39. 545 dated 15 September 2006) Secs. the guidelines are intended for general application. As such. 4196Q-4198Q (Reserved) Manual of Regulations for Non-Bank Financial Institutions . Sec. 4195Q Liquidity Risk Management.Page 56 (Circular No. The guidelines for the imposition of monetary penalty for violations/offenses with sanctions falling under Section 37 of R. No. supervision function is applied to this risk. The guidelines are intended for general application. measure. Market risk should be reviewed together with other risks to determine overall risk profile. Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R. The BSP is aware of the increasing diversity of financial products and that industry techniques for measuring and managing market risk are continuously evolving. 7653. No. measure. b. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II .4210Q (Reserved) E. g. bills of exchange and trust certificates shall not be used as evidence of deposit substitute liabilities. as well as attorney's fees and cost of collection in case of suit.4211Q. (RESERVED) Secs. c. The date of issuance shall be indicated at the upper right corner of the instrument.12. The payee may be identified by his trust account/deposit account number in both negotiable and non-negotiable instruments. shall be particularly described on the face of said instruments or on a separate instrument attached and specifically referred to therein and made an integral part thereof as to the maker. such as. "Promissory Note" or "REPO". d. DEPOSIT SUBSTITUTE OPERATIONS Section 4211Q Deposit Substitute Instruments.3 05. § 4211Q. in addition to stipulated interest.1 Prohibition against use of certain instruments as deposit substitutes. if they do not conform with the minimum features prescribed under Subsec. b.Certificates of assignment/ participation with recourse. serial number. value. § 4211Q. Acceptances.31 PART TWO DEPOSIT AND BORROWING OPERATIONS A. in case of default by the maker/issuer. if it is a demand instrument.3. Negotiable promissory notes acquired by QBs shall not be negotiated by mere indorsement and/or delivery. . and such other particulars as shall clearly identify the securities. If these notes do not contain the features in said Subsection. and c. A conspicuous notice at the lower center margin of the face of the instrument that the transaction is not insured by the PDIC. 4211Q. 4211Q. maturity.D.2 Negotiations of promissory notes. This prohibition shall not apply to the acceptance or negotiation of bills of exchange in connection with trade transactions. their negotiation shall be covered by any of the appropriate deposit substitute instruments mentioned in Sec.3 Minimum features Deposit substitute instruments issued by QBs shall have the following minimum features. Promissory notes. e. 4201Q . Only the following types of instruments may be issued by QBs as evidence of deposit substitute liabilities: a. and directly below which shall be the maturity period or the word "demand". or to the issuance of trust certificates creating trust relationship.§§ 4201Q . f.Page 1 . Repurchase agreements (REPOs). a. The corporate name of the issuer shall be printed at the upper center margin of the instrument and directly below which shall be a designation of the instrument. The instrument shall provide for the payment of liquidated damages. The present value and maturity value and/or the principal amount and interest rate and such other information as may be necessary to enable the parties to determine the cost or yield of the borrowing or placement shall be specified. Securities which are the subject of a REPO or a certificate of assignment/ participation with recourse. § 4211Q. 4 07. its subsidiaries or affiliates. or of securities in bearer form. Subsequent offense – (a) Suspension for ninety (90) days without pay of directors/officers responsible for the violation.12. The words "duly authorized officer" shall be placed directly below the signature of the person signing for the maker/issuer. Only security paper with adequate safeguards against alteration or falsification shall be used. Securities. j. The size and appearance of these instruments shall not be similar to the size and appearance of checks.4211Q. i. if certificated. but shall keep said securities segregated from the regular securities account of the borrower/seller if the borrower/seller has an existing securities account with the custodian.000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. Formats of standardized instruments in Appendices Q6 to Q-6-k shall be followed. Rubber stamping. shall be physically delivered. 450 dated 06 September 2004. Subsequent offenses – Fine of P20.000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected.§§ 4211Q.Page 2 Manual of Regulations for Non-Bank Financial Institutions . quedans and other documents of title which are the subject of quasi-banking functions. (2) Other sanctions First offense – Reprimand for the directors/officers responsible for the violation. Sanctions. such as REPOs. Any substantial deviation therefrom or any additional stipulation therein shall be referred to the BSP for prior approval.4 Delivery of securities1 a. Deposit substitute instruments shall conform to the language prescribed by the BSP. if immobilized or dematerialized while the overlying principal borrowing instrument shall be physically delivered to the lender/ purchaser.3 . to a BSP accredited custodian that is mutually 1 acceptable to the lender/purchaser and borrower/seller. That the exemption from the documentation requirements shall not be construed or interpreted as exemption of said borrowings from the other rules on borrowings by QBs and from other BSP regulations on deposit substitutes. Violation of any provision of Item "a" shall be subject to the following sanctions/ penalties: (1) Monetary penalties First Offense – Fine of P10. Borrowings of QBs from the loans and discounts window of banks or QBs shall be exempted from the documentation requirements of this Section: Provided. The custodian shall hold the securities in the name of the borrower/ seller. k. Each instrument shall be serially prenumbered. That a financial institution (NBFI) authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or owned by said institution. Q Regulations Part II . or by means of book-entry transfer to the appropriate securities account of the BSP accredited custodian in a registry for said securities. Provided. The copy delivered to the payee shall bear the word "Original" and the copies retained by the issuer shall be identified as "Duplicate. Effective 16 November 2004 under Circular No. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by authorized officers of the custodian and delivered to both the lender/purchaser and seller/borrower.31 h. § 4211Q." "File Copy" or words of similar import. typewriting and handwriting some provision shall not be considered compliance with said regulations. warehouse receipts. (b) Second offense (1) Fine of up to P20. § 4211Q.9 07. and (2) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. the stipulation shall clearly state either (a) that the underlying securities are being delivered to the buyer or assignee as collaterals or (b) that the ownership thereof is being transferred to the buyer or assignee.4 .9 Compliance with SEC rules.§§ 4211Q. (c) Subsequent offenses– (1) Fine of up to P30. 4211Q.000 a day or the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. Any agreement allowing the issuer/maker to substitute the underlying securities shall further provide that the actual substitution shall be with the prior written consent of the payee.8 Requirement to state nature of underlying securities.6 Substitution of underlying securities. M-2006-002 dated 05 June 2006 and Circular No.31 (b) Suspension or revocation of the accreditation to perform custodianship function. Sanctions. No.7 Call slips/tickets for 24hour loans.4211Q.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected.000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected. and (2) Reprimand for the directors/ officers responsible for the violation. respectively of the R. § 4211Q. 7653 (The New Central Bank Act). (2) Suspension or revocation of the authority to act as securities custodian and/ or registry. QBs shall comply with the new rules on the registration of short-term and longterm commercial papers appended hereto as Appendices Q-7 and Q-8.A. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37. The guidelines to implement the delivery by the seller of securities to the buyer or to his designated third party custodian are shown in Appendix Q-38.12. In case of REPOs and certificates of assignment/ participation with recourse. M-2006-009 dated 06 July 2006. In all other cases.5 Regulation on additional stipulation. b. and (3) Suspension for 120 days without pay of the directors/officers responsible for the violation. violation of any provision of the guidelines in Appendix Q-38 shall be subject to the following sanctions/penalties depending on the gravity of the offense: (a) First offense – (1) Fine of up to P10. Call slips or tickets may be used to evidence call loan transactions of not more than twenty-four (24) hours maturity or to cover reserve deficiencies. Stipulations between the maker/issuer and the payee which are embodied in separate instruments shall be specifically referred to in the deposit substitute instruments and made an integral part thereof. (As amended by M-2007-002 dated 23 January 2007. 524 dated 31 March 2006) § 4211Q. call loan transactions shall be evidenced by a promissory note containing the minimum features prescribed in Subsec. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II .Page 3 . and/or (d) Suspension or revocation of the authority to engage in trust and other fiduciary business. (c) Suspension or revocation of the authority to engage in quasi-banking function. § 4211Q. § 4211Q.3. tax paid or tax-exempt). which shall be a ground for the imposition of administrative sanctions and the disqualification from office of any director or officer responsible therefor under existing laws and regulations. (bb) authorized selling agents. and (cc) minimum selling lots. and (ix) other pertinent terms and conditions of the security and if possible. (vii) disposition of the security: (aa) registry (address and contact numbers). Responsibilities of the chief executive officer (CEO) or officer of equivalent rank. otherwise known as the PDIC law. QBs shall have a true and accurate account. (c) Informed the client that pursuant to Subsecs.12 06. It shall be the responsibility of the CEO or the officer of equivalent rank in a QB to: (1) Institute policies and procedures to prevent undocumented or improperly documented REPOs covering government securities.11 (Reserved) § 4211Q.12. such as but not limited to: (i) issuer and its financial condition. (v) risk factors and investment considerations.A. and (cc) pertinent registry rules and procedures. (2) Submit a notarized certification at the end of every semester that the QB did not enter into any REPO covering government securities. do not benefit from any insurance otherwise applicable to deposits such as. as amended. commercial papers and other negotiable and non-negotiable Q Regulations Part II . a.Page 4 securities or instruments that are not documented in accordance with existing BSP regulations and that the QB has strictly complied with the pertinent rules of the SEC and the BSP on the proper sale of securities to the public and performed the necessary representations and disclosures on the securities particularly the following: (a) Informed the clients that such securities are not deposits and as such.§§ 4211Q. (viii) collecting and paying agent of the interest and principal. The absence of proper documentation for REPOs is tantamount to willful omission of entries relevant to any transaction. No. (iv) tax features (whether taxable. (vi) liquidity feature of the instrument: (aa) procedures for selling the security in the secondary market (e. (ii) term and maturity date.g. OTC or exchange).12 Repurchase agreements covering government securities. The following regulations shall govern REPOs covering government securities. R. (b) Informed and explained to the client all the basic features of the security being sold on a without recourse basis.4: Manual of Regulations for Non-Bank Financial Institutions .4211Q.10 – 4211Q. commercial papers and other negotiable and non-negotiable securities or instruments must be properly recorded and documented in accordance with existing BSP regulations.31 §§ 4211Q. record or statement of their daily transactions. a copy of the prospectus or information sheet of the security. 3591. As such. commercial papers and other negotiable and non-negotiable securities or instruments.4 and 4101Q. commercial papers and other negotiable and non-negotiable securities or instruments of QBs as well as sale on a without recourse basis of said securities by QBs. 4211Q. (iii) applicable interest rate and its computation. (bb) functions of the registry. b.. Proper recording and documentation of REPOs. commercial papers and other negotiable and non-negotiable securities or instruments. but not limited to.10 . REPOs covering government securities. 12 05. the sole credit risk shall be borne by the client.Page 4a . Treatment as deposit substitutes. (Next page is Part II . or by means of book-entry transfer to the appropriate securities account of the purchaser or his designated custodian in a registry for said securities if immobilized or dematerialized (d) Clearly stated to the client that: (i) The QB does not guarantee the payment of the security sold on a “without recourse basis” and in the event of default by the issuer.31 (i) Securities sold under REPOs shall be physically delivered. Certification. if certificated. or by means of book-entry transfer to the appropriate securities account of the BSP accredited custodian in a registry for said securities. d. if certificated. if immobilized or dematerialized. commercial papers and other negotiable and non-negotiable securities or instruments that are not documented in accordance with existing BSP regulations shall be deemed to be deposit substitutes subject to regular reserves.12.§ 4211Q. The submission deadline for the required certification from the CEO/officer of equivalent rank of the QB shall initially be 1 February 2005 using the format in Appendix Q-36-a. to a BSP accredited custodian that is mutually acceptable to the client and the QB. or to his designated custodian duly accredited by the BSP. (3) Report to the appropriate department of the SES any undocumented REPO within seventy-two (72) hours from knowledge of such transactions.Page 5) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II . and (ii) The QB is not performing any advisory or fiduciary function. and (ii) Securities sold on a without recourse basis are required to be delivered physically to the purchaser. c. All sales of government securities. minimum fifteen (15)-day maturity period.4215Q 05. and c. minimum trading lot rule. impose any or all of the following sanctions to a quasi-bank or the director/s or officer/s found to be responsible for REPOs covering government securities.31 Thereafter. are subject to the: a. (2) Suspension of interbank clearing privileges/immediate exclusion from clearing. Automatic renewal from maturity of the instrument may be effected only under terms and conditions previously stipulated by the parties. at its evaluation and discretion. 4215Q Borrowings from Trust Departments or Managed Funds of Banks or Investment Houses. (3) Suspension of access to BSP rediscounting facilities. Sec. If there is any stipulation that payment of the deposit substitute shall be chargeable against a particular deposit account.Page 5 . 4213Q Minimum Trading Lot. Interbank borrowings shall not be subject to the limitations in this Section. reserve requirement on deposit substitutes. 4212Q Recording. (4) Suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments. Renewal a. c. commercial papers and other negotiable and non-negotiable securities or instruments that are not documented in accordance with existing BSP regulations: (1) Fine of up to P30. Sanctions.§§ 4211Q. (5) Revocation of quasi-banking license.000 a day to the concerned entity for each violation from the date the violation was committed up to the date it was corrected. and (c) in trust for (ITF) arrangements.12. The regulations on interbank loan transactions prescribed in Sec. and reported accordingly. Sec. no quasi-bank shall issue deposit substitute instruments in the name of two (2) or more persons or accounts except those falling under the following relationships in which cases. it shall further provide that the liability of the maker/issuer of the instrument shall not be limited to the outstanding balance of said amount. Sec. Payment. d. therefore. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II . 4214Q Interbank Borrowings. the required succeeding certification shall be submitted within five (5) banking days from end of reference semester using the format in Appendix Q-36. In connection with the minimum trading lot rule above stated. The minimum maturity of any single deposit substitute transaction shall be fifteen (15) days. commingling may be allowed: (a) husband and wife. (b) persons related to each other within the second degree of consanguinity. The minimum size of any single deposit substitute transaction shall be P50. b. regardless of whether the interest thereon has been paid in advance or not. Deposit substitutes shall be recorded in the books at their respective principal amounts. Maturity.12 . 4376Q shall also apply to interbank borrowings. Funds borrowed by quasi-banks from trust departments or managed funds of banks or investment houses are not considered as interbank borrowings and. and (7) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. (6) Revocation of authority to perform trust operations. b.000. The Monetary Board may. e. Sec. as stated in the certification. Government securities shall include evidences of indebtedness of the Republic of the Philippines and the BSP and other evidences of indebtedness or obligations of government entities. if any. the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. That placements shall be evidenced in all cases by promissory notes of accepting entities/REPOs and/or certificates of participation/assignment with recourse and that underlying instruments shall be government securities the servicing and repayment of which are guaranteed by the Republic of the Philippines. (b) that it has no past due obligations with the BSP or other government financial institutions. except purchases of government securities on an outright basis.000 a day. reckoned from the date placement started up to the date when said placement was withdrawn. Sec. and (d) the amount of its total outstanding money market placements.Fines of P5. As used in this Section. Subsequent Offenses . the following terms shall have the following meanings: Money market placements shall include investments in debt instruments. 4217Q Bond Issues of Quasi-banks The following guidelines shall govern the bond issues of quasi-banks. the following terms shall mean: a. for each violation shall be assessed on the bank. § 4216Q. Quasi-banks shall not accept money market placements from any rural bank unless the latter presents a certification under oath stating: (a) that it has no overdue special time deposits. (2) Suspension or revocation of the authority to engage in quasi-banking functions.§§ 4216Q . b. b.Page 6 c.3 Sanctions. (c) the amount of its current obligations. reckoned from the date placement started up to the date placement was withdrawn. with said government financial institutions. Other Sanctions First Offense .2 Conditions required on accepted placements. § 4216Q. Violations of the provisions of this Section shall be subject to the following sanctions/penalties: a.12.Fines of P3. and Q Regulations Part II . However. That the total money market placements of a rural bank.31 Sec. shall not exceed the rural bank's combined capital accounts or net worth less current obligations with the BSP or other government financial institutions. for each violation shall be assessed on the bank. including purchases of receivables with recourse to the lending institution. Government securities shall refer to the evidences of indebtedness of the Republic of the Philippines or its Manual of Regulations for Non-Bank Financial Institutions . Placements accepted must comply with the following conditions: a.1 05. The maturity of the money market placement shall not exceed sixty (60) days.000 a day.4217Q. § 4216Q. in no case shall such quasi-banks sell receivables to rural banks without recourse.Reprimand for the directors/officers who approved the acceptance/placement with a warning that subsequent violations will be subject to more severe sanctions.1 Definition of terms. Subsequent Offenses (1) Suspension for ninety (90) days without pay for directors/officers who approved the placement.1 Definition of terms. § 4217Q. Fines First Offense . including the placement being accepted by the entity concerned. For purposes of this Section. 4216Q Money Market Placements of Rural Banks. stamped on the face of each bond certificate issued. Subsidiary shall refer to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. or of the BSP. b. Bonds may be issued at face value. QBs issuing or intending to issue bonds shall comply with the new rules on the registration of long-term commercial papers (Appendix Q-8). e.§§ 4217Q. attaching documents required by the SEC for the issuance and registration of the bond issue. less valuation reserves. issue price. (5) Voting trustee holding ten percent (10%) or more of the outstanding voting securities. The minimum maturity of the bonds shall be four (4) years. Form. denomination. (6) Permanent proxy or voting trust constituting ten percent (10%) or more of the outstanding voting securities. § 4217Q. of ten percent (10%) or more of the outstanding voting stocks of the entity.3 Compliance with SEC rules. (3) Common stockholders owning ten percent (10%) or more of the outstanding voting securities. manner. 2655. or held with power to vote by another. (4) Management contract or any arrangement granting power to direct or cause the direction of management and policies.4217Q.2 Underwriting of bonds Bond issues may be underwritten by entities including those which are affiliates or subsidiaries of the issuer.1 . as amended. The trust indenture and the name of the indenture trustee shall be indicated on the face of the bond certificate. Interest. if any.000. control or power to vote. or at a premium. Term. d. of the bond issue. and must be freely negotiable and regularly serviced.5 Minimum features. § 4217Q. at a discount. Bond issues by QBs shall have the following minimum features: a. No optional redemption before the fourth year shall be allowed. (2) Interlocking directorships or officerships.12. or vice-versa. form of payment The bonds shall not be subject to interest rate ceilings prescribed by the Monetary Board or Act No. respectively. and (b) the condition that the investing affiliate or subsidiary does not have any outstanding loan from the issuer or that it shall not incur any indebtedness from the issuer during the period that the investment remains outstanding. a QB shall notify the appropriate department of the BSP of the approval. The investment of affiliates or subsidiaries in said bond issue shall be subject to: (a) individual and aggregate ceilings of ten percent (10%) and thirty percent (30%). Minimum denomination shall be P20. if any. shall likewise be indicated. Affiliate shall refer to an entity linked directly or indirectly to a QB by means of: (1) Ownership. b.4 Notice to Bangko Sentral Within three (3) days from approval by the SEC of its bond issue.Page 7 . § 4217Q. § 4217Q. c. The SEC-assigned bond registration number and expiry date. c. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II . Current market value shall refer to the value of the property as established by a duly licensed and independent appraiser. plus additions and improvements thereon. controlled.31 instrumentalities. Net book value shall refer to the acquisition cost of property or accounts.5 05. That interest shall not be paid in kind. Trust indenture. 4237Q . 632 dated 19 November 2008. Q Regulations Part II . which shall neither be an affiliate nor a subsidiary of the issuer. Deposit substitutes of QBs shall not be subject to yield or interest rate ceilings.7 Inapplicability of certain regulations. 4231Q .Aggregate current market value of 100% (2) High-grade private .4230Q (Reserved) F.31 Interest paid in advance shall not exceed the interest for one (1) year: Provided. agent or underwriter must maintain a bond registry duly approved by the SEC for recording. the reduction in regular reserves shall be effective the reserve week starting 14 November 2008. The form/composition of reserves for bond issues shall be in accordance with the applicable rules on reserve against deposit substitute liabilities and borrowings.Net book value of 150% (5) Unmatured receivables acquired without recourse . QBs shall maintain regular reserves of eight percent (8%)1 of deposit substitute liabilities as defined in Section 95 of R. 4218Q . Secs. The following shall be deemed as eligible collateral and shall be maintained at respective values indicated in relation to the face value of the bond issue: (1) Government securities . provide for the retirement at maturity of the bond issue through a sinking fund to be deposited with and managed by the indenture trustee. Secs. regardless of maturities except: (a) borrowings from the BSP through the sale of government securities under repo agreements made in connection with the provisions of Sec. The bonds shall be fully registered as to principal and interest. The issuer may. RESERVES Sec.Net book value of 200% Sec. sinking fund. No. Bond registry. e. certificates of title and documents evidencing receivables offered as security shall be physically delivered to the indenture trustee. Secs.Net book value of 100% G. The issuer.§§ 4217Q. 4601Q. collaterals.5 .12.Page 8 Manual of Regulations for Non-Bank Financial Institutions .4245Q (Reserved) H. at his option. § 4217Q. That in no case shall the collateral fall below the herein-required ratios. the names of transferees.A. 4236Q Yield/Interest Rates a. purchase price and serial numbers of bonds transferred. 4246Q Reserves Against Deposit Substitutes. lease contracts receivable .4246Q 08.4235Q (Reserved) (3) Real estate . in initial and subsequent transfers. Government and private securities. Substitution of collaterals shall be allowed: Provided. A trust indenture shall be executed between the issuer and a qualified trust corporation as trustee. 7653. its trustee. 4211Q and 4213Q shall not apply to bonds issued under these guidelines. (b) deposit substitutes arising from special financing 1 Under Circular No. INTEREST (4) Unmatured receivables acquired with recourse. b. A matured and an unclaimed deposit substitute shall be payable on demand and shall earn interest or yield from maturity to actual withdrawal or renewal at a rate applicable to a deposit substitute with a maturity of fifteen (15) days.6 Reserve requirement.Aggregate current securities listed in the market value of big board of stock 150% exchanges § 4217Q. date of transfer. (RESERVED) Secs. A five percent (5%) reserve shall be maintained against all bond issues of QBs. d. 4376Q. 491 dated 21 July 2005.4246Q. (2) A maximum of seventy-five percent (75%) in the form of government securities. That it complies with the guidelines shown in Appendix Q-41. The statutory reserve of two percent (2%) may not be availed of pending: (1) the issuance of the pertinent market convention acceptable to BSP that shall govern deposit substitutes transactions evidenced by repo agreements covering government securities. and (3) The balance in the form of demand deposit accounts with banks which are not restricted as to withdrawal or use for current operations but not with FIs which have been closed and are under receivership or liquidation. Any deficiency shall be in the form prescribed in Item “b” of Subsec. Not more than the percentage of liquidity reserves required under Sec. and 1 2 (3) Poverty Eradication and Alleviation Certificates (PEACe) bonds only to the extent of the original gross issue proceeds determined at the time of the auction.1 Composition of reserves The composition of the reserves shall be as follows: a.Page 9 . 4217Q for which the reserve requirement shall be five percent (5%).12. 4246Q. and (d) bonds under Sec. The balance shall be as follows: (1) At least ten percent (10%) in the form of deposit balances with the BSP. (2) NDC Agri-Agra ERAP Bonds. and (2) the opening for the purpose of a separate RoSS account with the Bureau of the Treasury by the BSP-accredited third party custodian.31 programs of the Government and/or international FIs. That deposit substitutes evidenced by repo agreements covering government securities up to the amount equivalent to the adjusted Tier 1 capital of the QB shall be subject to the statutory reserve of two percent (2%)2: Provided.1 08. and (ii) The instrument must expressly state in its face the amount. regardless of maturity. the documentation of which conforms with. government securities eligible as reserves against deposit substitute liabilities of QBs as referred to in Item "b(2)" above shall be limited to bonds or other evidences of indebtedness representing direct obligations of the government of the Republic of the Philippines having the following minimum features/conditions: (i) The securities must bear an interest rate of not more than four percent (4%) per annum.§§ 4246Q . That such rate shall apply only to repo agreements.1. On top of the regular reserve requirements. (1) Short-term market-yielding government securities purchased directly from the BSP-Treasury Department. maturity date and interest rate of the obligation. Provided. plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds. A list of reserves-eligible and non-eligible securities may be found in Appendix Q-9. an additional eleven percent (11%)1 liquidity reserves against deposit substitute liabilities (except Items “a” to “d” above) of QBs shall be imposed which may be maintained in the form prescribed in Item “a” of Subsec. further. effective the reserve week starting 15 July 2005. Any deficiency in the liquidity reserve shall continue to be in the forms or modes prescribed under existing regulations for the composition of required reserves. For purposes of this Subsection. (As amended by Circular No. b. (c) interbank call loan transactions under Sec. From 10% to 11% under Circular No. must be non-negotiable and shall carry BSP support. 4246Q.1. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II . 632 dated 19 November 2008) § 4246Q. and were delivered to a BSP accredited third party custodian as required under existing BSP regulations. 4246Q shall be maintained in the Reserve Deposit Account (RDA) with the BSP or may be in the form of the following: Provided. (As amended by M-2008-025 dated 13 August 2008) § 4246Q. (As amended by Circular Nos.1 . 551 dated 17 November 2006 and 539 dated 09 August 2006) § 4246Q. unexpected declared non-business days or Q Regulations Part II .Bill rate plus three (3) percentage points. That the QB shall be permitted to offset any reserve deficiency occurring one (1) or more days of the week covered by the report against excess reserves which it may hold on other days of the same week. Conversely. Sundays. the QB concerned shall pay the BSP one-tenth of one percent (1/10 of 1%) per day on the amount of the deficiency or the prevailing ninety-one (91). they shall be replaced by securities carrying the above features.§§ 4246Q. further.day T. starting Friday and ending Thursday. including Saturdays. That the QB notifies the BSP of any such change not later than the reporting day following the change. The reserve position of any QB and the penalty on reserve deficiency shall be computed based on a seven (7)-day week.12. non-business unexpected declared non-business days. declared halfday holidays and days when there is no clearing. Manual of Regulations for Non-Bank Financial Institutions . the reserve position as calculated at the close of the business day immediately preceding such public special/legal holidays. shall apply thereon. non-business days.31 Other government securities being used for reserve purposes shall continue to be eligible as such: Provided. and the QB may freely alter its composition: Provided. public special/legal holidays. non-business days and unexpected declared non-business day/s and declared half-day holidays and days when there is no clearing. the principal office in the Philippines and all other offices located therein shall be treated as a single unit. the selling/ borrowing QB in a repo agreement covering eligible government securities may not use such securities as reserves against deposit substitute liabilities. That any substitution or acquisition satisfies the eligibility requirements prescribed above: Provided. Whenever the reserve position of any QB computed in the manner specified in Subsec. Securities held as reserves shall be valued at cost of acquisition.4246Q.3 Reserve deficiencies. The reserve eligibility of government securities under the reverse repo operations of the BSP shall be suspended during the term of the repo agreement. and shall be required to pay the penalty only on the average daily net deficiency during the week.2 Computation of reserve position. That whenever said securities shall have matured. For this purpose.2 is below the required minimum. whichever is higher: Provided.Page 10 declared half-day holidays and days when there is no clearing: Provided. Securities counted as reserves which are hypothecated or encumbered in any way or earmarked for any other purpose shall automatically lose their eligibility as reserves. The required reserves in the current period (reference reserve week) shall be computed based on the corresponding levels of deposit substitute liabilities of the prior week. The phrase non-reserve eligible shall be stamped on the face of the custodian receipt being issued by the BSP to buyer FIs.3 08. Only the buying/lending QB in a resale agreement covering eligible government securities may use such securities as reserves against deposit substitute liabilities. however. The guidelines on the computation of a bank's reserve position during public sector holidays are shown in Appendix Q-49. 4246Q. That with reference to public special/legal holidays. sanctions a. §§ 4246Q. 4653Q: Provided.4246Q. Certificates of assignment issued with recourse by QBs under the IGLF Program are not covered by the reserve requirements.7 05. (2) prohibit the declaration of cash dividends. § 4246Q. and/or (3) impose such other sanctions.7 Interest income on reserve deposit with Bangko Sentral Deposits maintained by QBs with the BSP up to forty percent (40%) of their reserve requirement (excluding the percentage of liquidity reserves required on deposit substitute liabilities of QBs under Sec.Page 11 . as it may deem necessary.31 In case of abuse. the Monetary Board may limit or prohibit the making of new loans or investments by the QB. The computation of quarterly interest payments credited to the QBs’ DDAs with BSP are shown in Appendix Q-27.6 Book entry method for reserve securities. abuse in the privilege of offsetting reserve deficiencies against excess reserves shall mean having reserve deficiencies occurring four (4) or more times during any given week for two (2) consecutive weeks. Matured and unclaimed deposit substitutes shall continue to be subject to reserves. the QB shall automatically lose the privilege of offsetting reserve deficiency in the aforesaid manner until such time that it maintains its daily reserve position at the required minimum for at least two (2) consecutive weeks. In cases where the QB has chronic reserve deficiency on deposit substitute liabilities. The board of directors of such QB shall be notified of such chronic reserve deficiency and the penalties therefor. 4246Q) shall be paid interest at four percent (4%) per annum based on the average daily balance of said deposits to be credited quarterly. c. § 4246Q. New loan and new investment shall refer to any loan and any investment involving disbursement of funds. whether or not resulting in net weekly deficiencies.5 Matured and unclaimed deposit substitutes. Transactions concerning reserve-eligible securities shall be entered in the respective securities account of each QB with the BSP and shall be evidenced by securities account debit or credit advices to be promptly furnished the institution/s concerned. § 4246Q. Effective 1 July 2003. the following terms shall have the following meanings: Chronic reserve deficiency shall mean having net reserve deficiency for two (2) consecutive weeks. the Monetary Board may (1) limit or prohibit the making of new loans or investments by the QB concerned. As used in this Subsection. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II . and shall be required to immediately correct the reserve position of the QB.12. § 4246Q. No certificates shall be issued for any purpose.4 Exemptions. Fines on legal reserve deficiencies on deposit substitute liabilities shall be paid by the QB in accordance with Sec. b. Transactions with third parties other than the BSP shall not be recognized. As used in this Subsection.3 . published interest rates that will be applied on BSP’s Regular DDAs of QBs shall be inclusive of the ten percent (10%) Value Added Tax (VAT). That where the credit balance of the QB's demand deposit account (DDA) with the BSP is insufficient and it fails to settle the assessment within fifteen (15) days from receipt. 4276Q Repurchase Agreements with the Bangko Sentral. 4277Q (Reserved) Sec.§§ 4246Q. the following terms shall have the meaning indicated unless the context clearly indicates otherwise: Manual of Regulations for Non-Bank Financial Institutions . except as may be authorized by existing statutes. Deposit substitutes evidenced by repo agreements covering government securities in excess of the adjusted Tier 1 capital shall be treated as regular deposit substitutes and shall be subject to the regular statutory and liquidity reserve requirements under existing regulations. The adjusted Tier 1 capital reported daily should approximate the quarterly adjusted Tier 1 capital as submitted by banks in compliance with the provisions of Sec. 4281Q Borrowings from the Government. BORROWINGS FROM THE BANGKO SENTRAL Sec. 4116Q. 4278Q Enhanced Intraday Liquidity Facility (ILF). (As superseded by the MOA between the BSP. Sec. It shall be based on the amount reported by QBs in their weekly Consolidated Daily Report of Condition.8 Guidelines in calculating and reporting to the BSP the required reserves on deposit substitutes evidenced by repurchase agreements covering government securities a. (RESERVED) Secs. d. For purposes of this Section. notes or other evidence of debt. 4247Q . BAP and Money Market Association of the Philippines dated 25 March 2008) Secs.8 .4255Q (Reserved) Q Regulations Part II . 4602Q. OTHER BORROWINGS Sec. 4256Q . through the issuance or sale of its acceptances. Secs. The lagged system in the measurement of a QB’s reserve requirement. The Supervisory Data Center (SDC) shall determine the maximum allowable amount of repo agreements covering government securities that will qualify for the reduced statutory reserve requirements of two percent (2%).2.12.4275Q (Reserved) J. § 4281Q. BTr. the corresponding penalties on reserve deficiencies shall also apply. 4246Q. b. shall also be adopted in the calculation of the two percent (2%) statutory reserve requirements for repo agreements covering government securities.1 Definition of terms. Repo agreements with the BSP under its open market operations (OMOs) shall be governed by the provisions of Sec. as provided in Subsec. QBs shall not borrow any fund or money from the Government and government entities. The SDC shall also make a re-run of its computation of the QB’s reserve position and in the event that the reserve position resulted to a reserve deficiency/ies. Any material differences that may be noted by the SDC between the daily and the quarterly report shall be considered as erroneous reporting and shall be subject to the penalties under existing regulations.1 08.4280Q (Reserved) K. The ILF is a smoothening mechanism which is available to eligible participant QBs in the Philippine Payments and Settlements System (PhilPaSS) to support their liquidity requirements and avoid payment gridlocks in PhilPaSS.4281Q. c. The revised features of the enhanced intraday liquidity facility are shown in Appendix Q-13-B.31 § 4246Q.Page 12 I. 4279Q . corporations which are organized as subsidiaries of GOCCs under the provisions of the Corporation Law (Act No. as amended) or the Corporation Code (BP Blg. including governmentowned or controlled corporations (GOCCs) as defined herein. Fund or money from the Government and government entities includes public moneys of every sort. No. whether pertaining to the National Government. 7653 on QBs. Land Bank of the Philippines (LBP) and Al-Amanah Islamic Investment Bank of the Philippines. and all other liabilities to. The guidelines for the imposition of monetary penalty for violations/offenses with sanctions falling under Section 37 of R. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part II . city. 7653. 4299Q General Provision on Sanctions. Secs.12.1 . and deposits of. and "depository funds" as these terms are defined in the Revised Administrative Code of 1987. and shall comprise "revenue funds". 4282Q .31 a.A. No. 68) and private corporations which are taken over by GOCCs. their directors and/or officers are shown in Appendix Q-39. It shall exclude government FIs such as the Development Bank of the Philippines (DBP). or other branch or agency of the Government. 1459.§§ 4281Q.A.4298Q (Reserved) Sec.4299Q 05. b. municipality. borrowings from. province. Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.Page 13 . the Government and government entities. "trust funds". GOCCs shall refer to GOCCs which are created by special laws. Well-defined lending policies and sound lending practices are essential if a quasibank is to perform its credit-extension function effectively and minimize the risk inherent in any extension of credit. INVESTMENTS AND SPECIAL CREDITS Section 4301Q Management of Risk Assets/Minimum Guidelines on Lending Operations. A periodic review of the loan portfolio and the credit standing of borrowers shall be made. bank and trade checkings. The amount and period of the loan shall be justified by the financial statements submitted or by specific feasibility/project studies for a particular operation to be financed by the loan applied for. g. credit investigations must be conducted and appropriate statements of assets and liabilities and of income and expenditures shall be required of credit applicants. a.12. unless the terms of the transactions are not more favorable than those of other similar transactions. sureties and/or guarantors are capable of fulfilling their commitments. d. c.31 PART THREE LOANS. among other things. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . income and expense statements. Such policies shall be in writing to form part of the institution’s permanent records and shall be made available for inspection by the Bangko Sentral.Page 1 . majority of the voting stock of which is owned by subject corporation. Documentation of loans. indorsers. h. including purchase of commercial papers in the secondary market. Lending operations. Adequate credit files of borrowers shall be maintained which shall contain documents such as credit investigation reports. Requirement of lending policies Quasi-banks shall have well-defined lending policies which shall ensure that lending shall be upon terms which are in the best interest of the institution and in accordance with existing policy. and other documents/papers showing information which form the bases for the credit extension. Credit files. a statement of the purpose of the loan and a program of repayment of the obligation. Loans/credit accommodations shall be granted only in amounts and for periods necessary for the completion of the operations to be financed. A quasibank shall not relend to or purchase receivables or other obligations of other corporations. Arm’s length transactions. purpose and terms of credit accommodations.§ 4301Q 05. statements of assets and liabilities. It shall be the responsibility of the board of directors of a quasi-bank to formulate written policies on the extension of credit and risk diversification and to set the guidelines for evaluation of risk assets. the stockholders and supervisory authorities that timely and adequate action will be taken to maintain the quality of the loan portfolio and other risk assets. and for purposes which are attuned to government economic policies. rules and regulations of the Monetary Board. Amounts. f. For this purpose. The responsibility should be approached in a way that will provide assurance to the public. All loans/ credit extensions shall be supported by evidences of indebtedness and/or loan agreements which shall contain. Periodic review. definition Lending operations refer to any credit accommodation and purchase of receivables and commercial papers. Creditworthiness of borrowers Before extending credit in any form. e. co-makers. income tax returns. balance sheets. b. the quasi-bank must exercise proper caution to ascertain that the debtors. (6) The policy on large exposures and credit risk concentrations shall. Many past quasi-bank failures have been due to credit risk concentrations of some kind. at a minimum.g. It is essential for quasi-banks to prevent undue credit risk concentrations from excessive exposures to particular counterparties.1 . (4) While concentration of credit risks is inherent in quasi-banking and cannot be totally eliminated. measure. (ii) A group of related borrowers/ counterparties. The board should review these policies regularly (at least annually) to ensure that they remain adequate and appropriate for the quasibank. government. General principles (1) A quasi-bank can be exposed to various forms of credit risk concentration which if not properly managed may cause significant losses that could threaten its financial strength and undermine public confidence in the quasi-bank. (iii) Individual industry sectors. (b) The circumstances in which the above limits can be exceeded and the party authorized to approve such excesses.6 05.31 §§ 4301Q. Safeguarding against credit risk concentrations should form an important component of a quasibank’s risk management system. reviewing. corporate and individual borrowers). monitor and report large exposures and credit risk concentrations of the quasi-bank in a timely manner. Subsequent changes to the Q Regulations Part III . “Large exposures” shall refer to exposures to a Manual of Regulations for Non-Bank Financial Institutions . and (v) Various types of investments. (e) The definition of exposure. groups of related counterparties and groups of counterparties with similar characteristics (e.1 . economic sectors. (7) The board and senior management of a quasi-bank should ensure that: (a) Adequate systems and controls are in place to identify.4301Q.6 Large exposures and credit risk concentrations. The following guidelines shall govern managing large exposures and credit risk concentrations in line with the objective of strengthening risk management in the quasi-banking system. (d) The procedures for identifying.§§ 4301Q. industries. and (b) Large exposures of the quasi-bank are kept under regular review. the quasi-bank’s board of directors or credit committee with delegated authority from the board. a quasi-bank’s exposures to a counterparty should include its on and off-balance sheet exposures and indirect exposures. they can be limited and reduced by adopting proper risk control and diversification strategies. covers the following: (a) Exposure limits that are reasonable in relation to capital and resources for – (i) Various types of borrowers/ counterparties (e. a. In any case. regions or countries. banks and other financial institutions.g. managing and reporting large exposures of the quasi-bank.5 (Reserved) § 4301Q.Page 2 established policies must be approved by the board. e.12. (2) Credit risk concentrations may arise from excessive exposures to individual counterparties.g. (c) The delegation of credit authority within the quasi-bank for approving large exposures. and (f) The criteria to be used for identifying a group of related persons. (iv) Individual countries. Quasibanks should take into account the nature of their business and the complexity of their products.4301Q. counterparties in specific geographical locations. (3) Diversification of risk is essential in quasi-banking. economic or industry sectors). (5) The board of directors of a quasibank shall be responsible for establishing and monitoring compliance with policies governing large exposures and credit risk concentrations of the quasi-bank. 4302Q Loan Portfolio and Other Risk Assets Review System. Sec. Unsafe and unsound practice Non-observance of the principles and the requirements of Items “a” and “b” above may be a ground for a finding of unsafe and unsound practice under Section 56 of the General Banking Law of 2000 (Appendix Q-24) and may be subject to appropriate sanction as may be determined by the Monetary Board. e. Monitoring of large exposures/ credit risk concentrations (1) QBs should have a central liability record (preferably based on automated system) for each loan exposure.12. Large exposures shall be subject to more intensive monitoring. QBs should be able to monitor such exposures against prescribed and internal limits on a daily basis. where appropriate. (2) Every QB should have adequate management information and reporting systems that enable management to identify credit risk concentrations within the asset portfolio of the QB or of the group (including subsidiaries and overseas branches) on a timely basis.31 counterparty or a group of related counterparties equal or greater than five percent (5%) of QB’s qualifying capital as defined under Section 4116Q. QBs should reduce it in accordance with their prescribed policies. (5) There should also be an independent compliance function to ensure that all relevant internal and prescribed requirements and limits are complied with.4302Q 08. interest rate. limits and procedures are complied with. d. (4) Management should take prompt corrective action to address concerns and exceptions raised.Page 3 . Breaches of prescribed requirements and deviations from established policies and limits should be reported to senior management in a timely manner. To ensure that timely and adequate management action is taken to maintain the quality of the loan portfolio and other risk assets and that adequate loss reserves are set up and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . economic cycles. (8) A QB should.6 .g. Their review should ascertain whether: (a) The QB’s relevant policies. b. Reporting QB’s records on monitoring of large exposures shall be made available to the BSP examiners for verification at any given time. c. and (b) The existing policies and controls remain adequate and appropriate for the QB’s business. liquidity conditions or other market movements) on its profile and earnings. When warranted. f.§§ 4301Q. Notification requirements A QB must inform BSP immediately where it has concerns that its large exposures or credit risk concentrations have the potential to impact materially upon its capital adequacy. (3) QBs should ensure that their internal or external auditors conduct at least an annual review of the quality of large exposures and controls to safeguard against credit risk concentrations. conduct stress testing and scenario analysis of its large exposures to assess the impact of changes in market conditions or key risk factors (e. the BSP may impose additional reporting requirements on QB in relation to its large exposures and credit risk concentrations. Sanction Any failure or delay in complying with the requirements under Items “d” and “e” of this Subsection shall be subject to penalty applicable to those involving major reports. along with proposed measures to address these concerns. If a concentration does exist. (9) It is expected that QBs would generally observe a lower internal single borrower’s limit than the prescribed limit of twenty-five percent (25%) as a matter of sound practice. (As amended by Circular Nos. the guidelines in Appendix Q-10. 4303Q . advances and other assets consistent with the institutions’ stated policies and procedures. the twenty-five percent (25%) allowance for probable losses on secured loans classified as Substandard. and b. excluding (a) loans secured by obligations of the BSP or of the Philippine Government. 4306Q Loan Limit to a Single Borrower. § 4302Q. The specific allowance for probable losses for classified loans and other risk Q Regulations Part III . the BSP rules and regulations and the safe and sound banking practices.000 a day. and (2) from the dates prescribed under the preceding Subsection up to the date of the actual booking in cases of the two percent (2%) general provision for probable loan losses. QBs shall establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating credit policies vis-a-vis prevailing circumstances and emerging portfolio trends. counted as follows: (1) from the date the QB was informed that the recommendation of the appropriate department of the SES was confirmed by the Monetary Board up to the date that said recommended valuation reserves were actually booked. Non-compliance with the requirement to book the valuation reserves required under the preceding Subsection shall be a ground for the imposition of any or all of the following sanctions: a. LOANS IN GENERAL Sec. corporation or firm.Page 4 assets and the general loan loss provision as required in Appendix Q-10 shall be set up immediately.12. Doubtful and Loss as required by the BSP. and the five percent (5%) allowance for probable losses on Loans Especially Mentioned.2 Sanctions.§§ 4302Q . other credit accommodations.4306Q 08. The total liabilities of any person.1 Provisions for losses. booking. company. shall require management to develop and maintain an appropriate. in fulfilling this responsibility. Denial of requests for authority to establish branches/offices. The system of identifying and monitoring problem loans and other risk assets and setting up of allowance for probable losses shall include.4305Q (Reserved) A. systematic and uniformly applied process consistent and in compliance with existing BSP rules and regulations to determine the amount of reserves for bad debts or doubtful accounts or other contingencies. to a QB for money borrowed. 622 dated 16 September 2008 and 520 dated 20 March 2006) § 4302Q. but is not limited to. Management must also recognize that loss reserve is a stabilizing factor and that failure to account appropriately for losses or make adequate provisions for estimated future losses may result in misrepresentation of the QB’s financial condition. generally accepted accounting principles (GAAP). The board of directors of QBs are responsible for ensuring that their institutions have controls in place to determine the allowance for probable losses on loans. in case of the allowance for probable losses for loans and other risk assets classified as Substandard (Unsecured). The board of directors. (b) loans fully guaranteed by the government as to Manual of Regulations for Non-Bank Financial Institutions . Fine of P5. Secs.31 maintained at a level sufficient to absorb the loss inherent in the loan portfolio and other risk assets. § 4306Q.3 Sanctions. 4306Q. That even in cases where the parent corporation. Fines. (d) loans to the extent covered by the hold-out on or assignment of. all liabilities of its subsidiaries: Provided. drawer or guarantor who obtains a loan from or discounts paper with or sells papers under his guaranty to such quasi-bank and shall include in the case of liabilities of a co-partnership or association.3 05.Page 5 . 4106Q. from time to time. reckoned from the date the excess started up to the date when such excess was eliminated. imposition of a fine of P500 a day for each of the directors/officers who approved the credit line or availment which resulted in an excess. That in no case shall such liabilities exceed five percent (5%) of the net worth of the selling agent beyond the normal applicable SBL.1 Exclusions from loan limit In addition to those enumerated in Sec.31 the payment of principal and interest. That the additional liabilities are adequately secured by real estate mortgage.000 a day for each violation. specify as non-risk assets. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . shall be included in determining the SBL except those fully secured by cash. Subsequent offenses (1) For the duration of each violation. the term liabilities shall mean the direct liability of the maker or acceptor of paper discounted with or sold to such quasi-bank and the liability of the indorser. Violations of the provisions of the foregoing rules shall be subject to the following sanctions/penalties: a.4306Q. b. § 4306Q. and outstanding guarantees. except those issued by the lending entity. the total liabilities of a commercial paper issuer for commercial papers held by a quasi-bank as a firm underwriter shall not be counted in determining compliance with the SBL within a period of 180 days from the acquisition of the commercial paper by an quasi-bank: Provided. shall at no time exceed twenty-five percent (25%) of the combined capital accounts as defined in Sec. the nature of which requires the guarantor to assume the liabilities/obligations of third parties in case of their inability to pay. The total liabilities of any borrower may amount to a further fifteen percent (15%) of the combined capital accounts of such quasi-bank: Provided. (e) loans and acceptances under letters of credit to the extent covered by margin deposits. deposits maintained in the lending quasi-bank and held in the Philippines. Fines of one-tenth of one percent (1/10 of 1%) of the excess but not to exceed P30. Outstanding foreign and domestic standby and deferred letters of credit less margin deposits. shall be assessed on the quasibank.2 Contingent liabilities included in loan limit. Other sanctions First Offense Reprimand for the directors/officers who approved the credit line or availment which resulted in the excess with a warning that subsequent violations will be subject to more severe sanctions. hold-out on deposit substitutes. in the case of liabilities of a corporation. § 4306Q. co-partnership or association has no liability to the quasi-bank.12. For purposes of this Section. the liabilities of the several members thereof and shall include. or government securities.§§ 4306Q . assignment or pledge of readily marketable bonds and other high-grade debt securities. (c) loans fully secured by US Treasury Notes and other securities issued by central governments and central banks of foreign countries with the highest credit quality given by any two (2) internationally accepted rating agencies. and (f) other loans or credits which the Monetary Board may. the liabilities of subsidiary corporations or members of the co-partnership or association shall be combined for purposes of the single borrower’s limit (SBL). including commissions.1 Rate ceilings. § 4307Q.31 (2) Suspension of the quasi-bank from branching privileges until the excess is eliminated. Any prepayment made by the debtor should not. with maturities corresponding to the interest periods for which such MRRs are being determined. such prepayment shall not be subject to penalty in the absence of any stipulation as to penalty. when allowable. fees and other charges on loan transactions. The rate of interest. § 4307Q. the interest period. In case of prepayment in the loan contract.4307Q. The rate of interest on floating rate loans existing and outstanding as of 23 December 1995 shall continue to be determined on the basis of the MRRs Q Regulations Part III .3 . The borrower of a quasi-bank shall not be prohibited from prepaying a loan. That the penalty is not excessive or unconscionable. § 4307Q. Such rates and the composition of the sample commercial banks shall be reviewed and determined at the beginning of every calendar semester on the basis of the banks’ combined levels of outstanding deposit substitutes and time deposits as of May 31 or November 30.5 Escalation clause. which shall be such period of time for which the rate of interest is fixed. A stipulation requiring the consent of the lending quasi-bank to such prepayment shall be contrary to this provision.Page 6 obtained in accordance with the provisions of the rules existing as of 1 January 1989: Provided. That the parties to such existing floating rate loan agreement are not precluded from amending or modifying their loan agreements by adopting a floating rate of interest determined on the basis of TBR or other market-based reference rates. premiums. § 4307Q.4 Loan prepayment.3 Effect of prepayment. However. affect computation of the effective rate stipulated in the loan contract. The MRRs for various interest periods shall be determined and announced by the BSP every week and shall be based on the weighted average of the interest rates paid during the immediately preceding week by the ten (10) commercial banks with the highest combined levels of outstanding deposit substitutes and time deposits. regardless of maturity and whether secured or unsecured.5 05. Parties to an agreement pertaining to a loan or forbearance of money. therefore. Where the loan agreement provides for a floating interest rate. shall not be subject to any ceiling.2 Floating rates of interest The rate of interest on a floating rate loan during each interest period shall be stated based on the Manila Reference Rate (MRR). of P100. the parties may stipulate that prepayment shall be subject to penalty: Provided. in promissory notes issued and time deposits received by such banks. however. shall be such period as may be agreed upon by the parties. If there is no agreement on the rebate of interest in the event of prepayment of the loan. plus a margin as may be agreed upon by the parties. goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable Manual of Regulations for Non-Bank Financial Institutions . § 4307Q. 4307Q Interest and Other Charges The following rules shall govern the rates of interest on loans by quasi-banks.12. Sec. Treasury Bill Rate (TBR) or other marketbased reference rates.000 and over per transaction account. the quasi-bank is not under any legal obligation to return the interest corresponding to the period from date of prepayment to the stipulated maturity date of the loan. as the case may be.§§ 4306Q. in the absence of express contract as to such rate of interest. or such other conditions of financial difficulties or inability to meet financial obligations as they mature.Page 7 . subject to the following guidelines and/or procedures. 4311Q. further. shall be chargeable against operations.12. the Allowance for Uncollected Interest on Loans shall be considered a valuation reserve/allowance against the Accrued Interest Receivable account. interest income shall not be accrued for unmatured loans/receivables with indications that collectibility thereof has become doubtful. Interest income on restructured loans (principal plus capitalized interest thereon) may be accrued: Provided. Interest income on past due loans arising from discount amortization (and not from the contractual interest of the accounts) shall be accrued as provided in PAS 39. cessation of operations. The rate of interest for the loan or forbearance of any money. That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. insolvency. Quasi-banks are allowed to accrue interest earned on loans. d. 4308Q Past Due Accounts. § 4307Q. e. Separate appropriate records shall be maintained for these non-accruing unmatured loans. c. That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided. Sec. Accrued interest earned but not yet collected/received shall not be considered as profits and/or earnings eligible for dividend declaration and/or profit sharing. Likewise. No accrual of interest income is allowed if a loan has become nonperforming as defined in Sec. refer to all accounts in its loan portfolio. and (2) Fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon. goods or credit and the rate allowed in judgments. The balance thereof. b. A contra account to be designated Allowance for Uncollected Interest on Loans shall be set up in accordance with Appendix 10 if accrued interest receivable on loans or loan installments is still uncollected after three (3) months from the date such loans and loan installments have matured or have become non-performing. if any. That these are: (1) In current status. That there is no previously accrued but uncollected interest thereon. f. a. shall be twelve percent (12%) per annum.§§ 4307Q.4308Q 05.7 Accrual of interest earned on loans. Interest earned on an extended or renewed loans may be accrued: Provided.31 maximum rate of interest is increased by law or by the Monetary Board: Provided.6 Rate of interest in the absence of stipulation. § 4307Q. and such other first class collaterals as may be deemed appropriate by the Monetary Board. For all purposes. all receivable components of trading Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . These indications include declaration of bankruptcy. The amount representing Allowance for Uncollected Interest on Loans may be chargeable against the excess of outstanding valuation reserves for loans and other risk assets as appearing in the quasi-bank’s books over those recommended by the appropriate SED of the BSP. as a general rule.5 . Interest on non-performing loan accounts shall be taken up as income only when actual payments thereon are received. Past due accounts of a quasi-bank shall. 3 Restructured loans.1 Accounts considered past due. make a written demand within three (3) months following the grant Manual of Regulations for Non-Bank Financial Institutions . in case of non-payment of a demand loan. whichever comes earlier: Provided. That an out-oftown check and a foreign check shall be considered as past due if outstanding for thirty (30) days and forty-five (45) days. further. The following shall be considered as past due: a. unless earlier dishonored. No loan shall be renewed nor its maturity date extended unless the corresponding accrued interest receivable shall have been paid. § 4308Q. which are not paid at maturity. respectively.if not paid on due date. § 4308Q. § 4308Q.§§ 4308Q . the entire outstanding balance of the loan/receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total loan/receivable balance. Bills and other negotiable instruments purchased . e. as defined in the manual of accounts for non-bank financial institutions. b. regardless of the number of installments in arrears: Provided.1(e). the total outstanding balance of the loan/receivable shall be considered as past due. (Deleted by Circular No. For this purpose. 202 dated 27 May 1999) For the purpose of determining delinquency in the payment of obligations as defined in Subsec.if dishonored upon presentment for acceptance or not paid on due date. Customers’ liability on drafts under letters of credit/trust receipts: (1) Sight Bills . the term installments shall refer to principal and/or interest amortizations that are due on several dates as indicated/specified in the loan documents. Loans/receivables payable in installments .2 Renewal/extension. Loans or receivables payable on demand . and g.g.if dishonored upon presentment for acceptance/payment or not paid on maturity date. whether or not representing availments against a credit line . f. That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the loan/receivable. however. or within three (3) months from date of grant. from the time the obligor defaults. whichever comes earlier.31 account securities and other receivables.the total outstanding balance thereof shall be considered past due in accordance with the following schedule: Mode of Payment Monthly Quarterly Semestral Annual Q Regulations Part III . daily.12. whichever comes earlier. weekly or semi-monthly). Bills discounted and time loans. however. and (3) Trust Receipts .4 05. 4143Q. § 4308Q. whichever comes earlier. shall be considered as past due.4 Demand loans.Page 8 Minimum Number of Installments in Arrears 3 1 1 1 Provided.if not paid on the date indicated on the demand letter. d.if dishonored upon presentment for payment or not paid within thirty (30) days from date of original entry. A restructured loan shall be immediately classified past due in case of default of any principal or interest payment. c.if the amount due is not paid within ten (10) days from the deadline indicated in the billing statement.4308Q.if not paid on the respective maturity dates of the promissory notes. That for modes of payment other than those listed above (e. any due and unpaid loan installment or portion thereof. (2) Usance Bills . Quasibanks shall. Credit card receivables . other credit accommodations.4308Q.1. may write-off loans. advances and other assets shall remain in the books. (5) Bad debts. or any organization performing similar functions. any advance by means of DAUD and any advances of unearned salary or unearned compensation. the following terms are hereby defined as follows: (1) Loans. placements. other credit accommodations. to credit information bureaus. The income tax expense deferred corresponding to the amount of loan.§§ 4308Q.Page 9 . The demand shall indicate a period of payment which shall not be later than three (3) months from the date of said demand. accrued interest receivables. other credit accommodations. (4) Other assets. accounts receivables. shall submit monthly reports to these bureaus or organizations on the full payment or settlement of the previously reported accounts within five (5) business days from the end of the month when such full payment was received. Notice of write-off of loans. advances and other assets are worthless as follows: (1) In the case of secured loans. cash “vale”.12.4 . advances and other assets. QBs may write-off loans. (Circular No. 589 dated 18 December 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . Definitions. The term bad debts shall refer to the definition under Subsec.5 Write-off of loans as bad debts a. (3) Advances. advances and other asset written-off considered deductible for income tax purposes shall be recognized and reversed in QB’s books. upon approval by their board of directors. 4126Q. other credit accommodation. b.6 Updating of information provided to credit information bureaus QBs which have provided adverse information. The term other credit accommodations shall refer to exposures of QBs other than loans such as sales contract receivables. other credit accommodations and other assets in an amount corresponding to the booked valuation reserves: Provided. other credit accommodations. advances and other assets considered transactions with DOSRI shall be with prior approval of the Monetary Board. However. QBs. For this purpose. it shall be the responsibility of the reporting QBs to ensure that their disclosure of any information about their borrowers/clients is with the consent of borrowers/clients concerned. advances and other assets in full amount outstanding.6 07. advances and other assets shall be submitted in the prescribed form to the appropriate department of the SES at least twenty five (25) banking days prior to the intended date of write-off. For purposes of this Section. Reporting requirements. QBs shall write-off said loans. other credit accommodations. other credit accommodations. § 4308Q. § 4308Q. advances and other assets against allowance for probable losses (valuation reserves) or current operations as soon as they are satisfied that such loans. c. other credit accommodations. The term loans shall refer to all the accounts under the loan portfolio of a QB as enumerated in the Manual of Accounts for Quasi-Banks. The term advances shall refer to any advance by means of an incidental or temporary overdraft. write-off of loans. (2) In the cases of unsecured loans. The term other assets shall refer to investments. (2) Other credit accommodations. That the balance of the secured loans. and rental receivables.31 of such loan. such as the past due or litigation status of loan accounts. lease receivables. ROPAs and all other asset accounts that will not fall under loans and other credit accommodations. f. insurance contracts. partnership. or sale or contract of sale of property or services. c. in the case of the purchase of an automobile on credit. Any rental-purchase contract.12. f. any obligation or claim arising out of any of the foregoing. and shall make the true and effective cost of borrowing an integral part of every loan contract. and (2) Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits. Person means any individual. under which part or all of the price is payable subsequent to the making of such sale or contract. advance and discount. § 4309Q. Any transaction or series of transactions having a similar purpose or effect. Cash price or delivered price. is the amount of money which would constitute full payment upon delivery of the property (except money) or service purchased at the QB’s place of business.§§ 4309Q . etc. QBs are required to strictly adhere to the provisions of R. or other acquisition of. and g. Non-finance charges correspond to the amounts advanced by the QB for items normally associated with the ownership of the property or the availment of the service purchased which are not incidental to the extension of credit. Amount to be financed consists of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in. bailment. and includes the Philippine Government or any agency thereof. mortgage. Any contract or arrangement for the hire. attorney’s fee and other service charges. or any credit upon the security of. pledge. or any of its political subdivisions. Any option. In the case of financial transactions. lien. given at the time of the transaction as partial payment for the property or service purchased. For example. or other claim against. e. Trade-in represents the value of an asset agreed upon by the QB and debtor. The following regulations shall apply to all QBs engaged in the following types of credit transactions: a. if any. Any conditional sales contract. the QB may advance the insurance premium as well as the registration fee for the account of the debtor. Any purchase. or leasing of property. or any agency of the foregoing. 4309Q “Truth in Lending Act” Disclosure Requirement. or other organized group of persons. credit investigation fee. otherwise known as the “Truth in Lending Act”. g.A. collection fee. Any loan. sale of bonds. d. b. any contract to sell. or the legal successor or representative of the Q Regulations Part III . demand. association. d. No.4309Q. c. The following categories of credit transactions are outside the scope of these regulations: (1) Credit transactions which do not involve the payment of any finance charge by the debtor. deed of trust. or any other government. or for delivery of property or money. cash price represents the amount of money received by the debtor upon consummation of the credit transaction.Page 10 foregoing. Finance charge represents the amount to be paid by the debtor incidental to the extension of credit such as interest or discount. in case of trade transactions. e. b.31 Sec. 3765.1 Definition of terms a. either for present or future delivery. Down payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased.1 05. corporation. net of finance charges collected at the time the credit is extended. Manual of Regulations for Non-Bank Financial Institutions . between the finance charges and amount to be financed. h. and (ii) the sum of the cash price and nonfinance charges. In the case of single payment upon maturity.12.§ 4309Q.Page 10a . on an annual basis. the simple annual rate (R) in percent is determined by the following method: R= finance charge X amount to be financed 12 X100 maturity period in months In the case of the normal installment type of credit of at least one (1) year in duration.1 05.31 The total finance charge represents the difference between (i) the aggregate consideration (down payment plus installments) on the part of the debtor. where installment payments of (Next page is Part III .Page 11) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . Simple annual rate is the uniform percentage which represents the ratio. as defined in the credit contract.1 In cases where credit terms provide for premium or penalty charges depending on.e. i. for instance. For example. the annual rate to be disclosed in writing shall be the rate for regular payments. the premium and penalty need not be taken into account in the determination of the annual rate. 1 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . The percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. the number of months in a year. by the number or fraction of months between installment payments. the R in percent is computed by the following method: R=2x finance charge x amount to be financed number of payments in a year x 100 total number of payments plus one In cases where the credit matures in less than one (1) year (e.3 Inspection of contracts covering credit transactions. individually itemized. or any other document to be acknowledged and signed by the debtor. which will be collected in case certain stipulations in the contract are not met by the debtor.31 equal amount are made in regular time periods spaced not more than one (1) year apart. if any. QBs shall furnish to each person to whom credit is extended.. The amounts. Such premium or penalty charges shall.3 05. In addition.QBs shall keep in their office or place of business copies of contracts which involve the extension of credit and the payment of finance charges therefor.2 Information to be disclosed. shall indicate the above seven (7) items of information. d. as if the credit matures in one (1) year. The cash price or delivered price of the property or service to be acquired. and g. Such copies shall be available for inspection or examination by the appropriate department of the SES. if any. the same formula will apply except that number of payments in a year would refer to the number of installment periods.12. shall be disclosed in another document in the form (Appendix Q-11) prescribed by the Monetary Board. which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit.4309Q. -------------------------------------------------------------------------------- This can be determined by dividing twelve. The finance charges expressed in terms of pesos and centavos. The difference between the amounts set forth under Items "a" and "b". to the extent applicable. all of the items. to be credited as down payment and/or trade-in.1 . number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction. the contract or document shall specify additional charges. e. f. § 4309Q.§§ 4309Q. to be signed by the debtor and appended to the main contract. The contract covering the credit transaction. The total amount to be financed. prior to the consummation of the transaction. c. installment payments are required every month for six (6) months).Page 11 . In case the seven (7) items of information mentioned are not disclosed in the contract covering the credit transaction. b. however. the timeliness of the debtor’s payments. The charges. § 4309Q. a clear statement in writing setting forth the following information: a. A copy of such disclosure statement shall be furnished to the borrower.g.. be indicated in the credit contract. semi-annual or annual installments. Interest income on past due loans arising from discount amortization (and not from the contractual interest of the accounts) shall be accrued as provided in PAS 39. Interest on NPLs shall be taken up as income only when actual payment thereon is received. § 4311Q. a QB shall grant loans or other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operation to be financed. the total outstanding balance thereof shall be considered non-performing when three (3) or more installments are in arrears.4 Posters.2 Interest accrual on past due loans. Non-performing loans (NPLs) shall.4 Reporting requirement QBs shall report the following data at the end of each month as additional information in the monthly Consolidated Statement of Condition starting with their report as of 31 May 1999. 4311Q Non-Performing Loans § 4311Q.Page 12 § 4311Q.12.A. c. 4310Q (Reserved) Sec. 4308Q. weekly or semi-monthly installments. A contra account to be designated Allowance for Uncollected Interest on Loans shall be set up in accordance with Appendix Q-10 if accrued interest receivable on loans and loan installments is still uncollected after three (3) months from the date such loans have become non-performing. 4312Q Grant of Loans and Other Credit Accommodations. No accrual of interest income is allowed if a loan has become non-performing as defined under Subsec.1. i. in which case. Manual of Regulations for Non-Bank Financial Institutions . An abstract of R.1 General guidelines Consistent with safe and sound business practices. e. d. 4351Q.1 08.1 Accounts considered non-performing. the entire outstanding balance of the loan/ receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total loan/ receivable balance. In the case of loans payable in daily. The following regulations shall be observed in the grant of loans and other credit accommodations. § 4311Q.31 § 4309Q. refer to loan accounts whose principal and/or interest is unpaid for thirty (30) days or more after due date or after they have become past due in accordance with existing rules and regulations. All items in litigation as defined in the Manual of Accounts shall be considered NPLs. In the case of loans payable in monthly installments. Restructured loans shall be considered non-performing in accordance with existing rules and regulations. wide and seventy-five (75) cm. b. the total outstanding balance thereof shall be considered non-performing. long and posted on a conspicuous place in the QB’s place(s) of business.4 . Sec.4312Q. No. 3765 (Appendix Q-12) shall be reproduced in a format sixty (60) cm. Total non-performing loans xxx Non -performing regular loans xxx Non -performing restructured loan xxx Sec.e.§§ 4309Q. This shall apply to loans payable in lump sum and loans payable in quarterly.. Q Regulations Part III .3 Allowance for uncollected interest on loans. the total outstanding balance thereof shall be considered non-performing at the same time that they become past due in accordance with Sec. as a general rule. § 4312Q. definitions a. and other loans granted to poor and low-income households for their microenterprises and small businesses. other credit accommodations. (5) Loans to individuals who are not required to file ITRs under BIR regulations. 8425). A waiver of confidentiality of client information and/or an authority of the QB to conduct random verification with the BIR in order to establish authenticity of the ITR and accompanying financial statements submitted by the client.§ 4312Q. a QB must ascertain that the borrower. victims of calamities and disasters. and urban poor.A. The documents under Items “a” and ”b” above shall be required to be submitted annually for as long as the loan and/or credit accommodation is outstanding. and c. The waiver of confidentiality of client information and/or an authority of the QB to conduct random verification with the BIR need not be submitted annually since once submitted these documents remain valid unless revoked. senior citizens. Should the document(s) submitted prove to be spurious or incorrect in material detail. children. Except as otherwise provided by law and in other regulations. if the borrower is engaged in business. surety and/or guarantor. The consistency of the data/figures in said ITRs and financial statements shall also be checked and considered in the evaluation of the financial capacity and creditworthiness of credit applicants. if applicable. for relatively short periods of time (180 days) and often featuring joint and several guarantees of one (1) or more persons. (2) Loans to registered BMBEs. Said loans are usually unsecured. weekly. No. For this purpose. youth and students.Page 13 . endorser. duly stamped as received by the BIR. a QB shall require from the credit applicant the following: a. a QB shall obtain adequate information on his/their credit standing and financial capacities. the QB may terminate any loan or other credit accommodation granted on the basis of said document(s) and shall have the right to demand immediate repayment or liquidation of the obligation. women. restructured. if applicable. In addition to the usual information sheet about the borrower.31 Before granting loans or other credit accommodations. (3) Interbank loans. except: (1) Microfinance loans. b. depending on the cash flow conditions of the borrowers. The maximum principal amount of microfinance loans shall not exceed P150. The required submission of additional documents shall cover loans. is/are financially capable of fulfilling his/their commitments to the QB. the QB may seek redress from the court for any harm done by the borrower’s submission of spurious documents. differentlyabled persons. and credit lines granted. indigenous peoples and cultural communities.000 and may be amortized on a daily.12. A copy of the latest Income Tax Return (ITR) of the borrower and his co-maker. as follows: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . migrant workers.1 08. Moreover. semi-monthly or monthly basis. artisanal fisherfolk. as defined in the Social Reform and Poverty Alleviation Act of 1997 (R. a copy of the borrower’s latest financial statements as submitted for taxation purposes to the BIR. renewed or extended after 02 November 2006 including any availment and/or re-availment against existing credit lines. co-maker. This represents small loans granted to the basic sectors such as farmer-peasant. (4) Loans secured by hold-outs on or assignment of deposits or other assets considered non-risk by the Monetary Board. workers in the formal and informal sector. 2. agribusiness and/or services whether single proprietorship. (b) Those whose income has been subjected to final withholding tax. That the borrowers submitted. Consumer loans. or whose compensation income derived from one (1) employer does not exceed P60. loans for payment of educational and hospital bills. otherwise. No. and financial statements submitted for taxation purposes to the BIR. renewal. or extended. furniture and fixtures. the proceeds of a loan or other credit accommodation may be utilized by the borrower for a purpose(s) other than that originally stated in the application and Manual of Regulations for Non-Bank Financial Institutions . inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office.§§ 4312Q. That these loans are supported by ITRs or by BIR Form 2316 or payslips for at least three (3) months immediately preceding the date Q Regulations Part III . Before granting a loan or other credit accommodation. Notwithstanding the preceding sentence. or as may be defined by the SMED Council or other competent government agency. the QB may terminate the loan or other credit accommodation and demand immediate repayment of the obligation. (c) Senior citizens not required to file a return pursuant to R. the following definitions shall apply: 1.000 and the income tax on which has been correctly withheld.0 million and P15. The proceeds of a loan or other credit accommodation shall be utilized only for the purpose(s) stated in the application and contract. Consumer loans is defined to include housing loans.31 (a) Individuals whose gross compensation income does not exceed their total personal and additional exemptions. salary loans and loans for personal consumption.Page 14 of loan application.1 . Loans to micro and small enterprises which are not specifically exempted from the additional documentary requirements specified under the third paragraph of this Subsection shall be exempted from said additional documentary requirement up to 31 December 2011. whose only source of income is compensation and the corresponding taxes on which has been withheld at source: Provided. plant and equipment are situated.4312Q.0 million. renewed. including credit card loans.2 08. must have a value of up to P3. 7432. are exempted from updating requirements or the required annual submission of the same requirements forwarded during the initial submission under this Subsection but not in their restructuring. (As amended by Circular Nos. Micro and small enterprises shall be defined as any business activity or enterprise engaged in industry. as may be applicable. at the time the loans were granted. or extensions or availment/re-availment against existing credit lines: Provided. general or special. and (6) Loans to borrowers.0 million respectively. QBs shall ascertain the purpose of the loan or other credit accommodation which shall be clearly stated in the application and in the contract between the QB and borrower.A.A. in relation to the provisions of the National Internal Revenue Code (NIRC) or the Tax Reform Act of 1997. loans for purchase of car.12. 9257. For purposes of this Subsection. and (d) An individual who is exempt from income tax pursuant to the provisions of the NIRC and other laws. restructured. 622 dated 16 September 2008 and 549 dated 09 October 2006) § 4312Q. cooperative. in lieu of the ITR. partnership or corporation whose total assets. household appliance(s). as amended by R. No.2 Purpose of loans and other credit accommodations. with original amounts not exceeding P2. a copy of their Employer’s Certificate of Compensation Payment/Tax Withheld (BIR Form 2316) or their payslips for at least three (3) months immediately preceding the date of loan application. That such utilization shall be with prior written approval of duly authorized officer(s)/ committee/board of directors of the lending QB and such written approval shall form part of the contract between the QB and the borrower.31 contract: Provided. 622 dated 16 September 2008) § 4312Q. The determination of the majority of all the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III .4 Signatories. d. other credit accommodations and guarantees to all subsidiaries and affiliates shall not exceed twenty percent (20%) of the net worth of the lending QB: Provided. The approval shall be manifested in a resolution passed by the board of directors during a meeting and made of record. The following provisions shall apply if a QB grants a loan. officer or stockholder sits in the board of directors or is appointed officer of such corporation as representative of the QB. other credit accommodations and guarantees to each of said subsidiaries and affiliates shall not exceed five percent (5%) of such net worth: Provided. (2) Approval by the board. other credit accommodations and guarantees to each of the QB’s subsidiaries and affiliates shall not exceed ten percent (10%) of the net worth of the lending QB: Provided. 4321Q . (Circular No. except where such director. officer. at least one (1) co-maker. Exclusions from the ceilings.§§ 4312Q. other credit accommodations and guarantees secured by assets considered as non-risk under existing BSP regulations as well as interbank call loans shall be excluded in determining compliance with the ceilings prescribed under Item “b” above.12.3 Prohibited use of loan proceeds. That the total outstanding loans.2 . (As amended by Circular No. 4313Q – 4320Q (Reserved) B. (RESERVED) Secs. 622 dated 16 September 2008) § 4312Q. except that a co-maker is not required when the principal borrower has the financial capacity and a good track record of paying his obligations. c. Procedural requirements. how manifested.4327Q (Reserved) Sec. further. 622 dated 16 September 2008) Secs. when to obtain. 4328Q Loans.4328Q 08. further. other credit accommodation and guarantee shall be granted to a subsidiary or affiliate. That such other purpose(s) is/are among those for which the lending QB may grant loans and other credit accommodations under existing laws and regulations: Provided. and/or stockholder of the lending institution. no loan. (1) Approval of the board. That the unsecured loans. b. in the case of unsecured loans and other credit accommodations to an individual borrower. Ceilings. finally. other credit accommodation or guarantee to any of its subsidiaries and affiliates. Statement of policy. Dealings of a QB with its subsidiaries and/or affiliates shall be in the regular course of business and upon terms not less favorable to the institution than those offered to others. QBs shall require that loans and other credit accommodations be made under the signature of the principal borrower and. (3) Determination of majority of all the members of the board of directors. (Circular No. Loans.Page 14a . Other Credit Accommodations and Guarantees Granted to Subsidiaries and/or Affiliates a. Except with prior written approval of the majority of all the members of the board of directors. The total outstanding loans. That these subsidiaries and affiliates are not related interest of any of the director. QBs are prohibited from requiring their borrowers to acquire shares of stock of the lending QB out of the loan or other credit accommodation proceeds from the same QB. (5) Transmittal of copy of board approval. g.4336Q 08. UNSECURED LOANS Sec. That in instances where a director who participated in the board meeting and who approved such resolution failed to sign. 4329Q . A copy of the written approval of the board of directors. (4) Contents of the resolution. interest rate. in addition to the requirements of Sec. other credit accommodations and guarantees covered by these regulations in a manner and form that will facilitate verification of such transactions by BSP examiners. (c) Date of resolution.§§ 4328Q . other credit accommodation and guarantees to subsidiaries/affiliates that will exceed the ceilings mentioned above shall not be subject to penalty until 9 April 2007 or until said accommodations become past due. shall be submitted to the appropriate department of the SES within twenty (20) business days from the date of approval. Outstanding loans.Page 14b The appropriate department of the SES may require QBs to furnish such data or information as may be necessary for purposes of implementing the provisions of the foregoing rules. or are extended. Q Regulations Part III . Sanctions. The resolution of the board of directors shall contain the following information: (a) Name of the subsidiary or affiliate. whichever comes later.000 a day on the following: (a) The lending QB. Without prejudice to the criminal sanctions under Section 36 of R. 4336Q Loans Against Personal Security. renewal. The grant. as herein required. That if a reproduction copy is to be submitted. Reportorial requirements. The copy may be a duplicate of the original. be made under the signature of Manual of Regulations for Non-Bank Financial Institutions . imposition of a fine of one tenth (1/10) of one percent (1%) of the excess over the ceilings per day but not to exceed P30. amount. restructuring or extension of unsecured loans shall.31 members of the board of directors shall be based on the total number of directors of the QB as provided in its articles of incorporation and by-laws. Each QB shall maintain a record of loans. contents thereof. (Circular No.A. other credit accommodations and guarantees have been reduced to within the herein prescribed ceilings. f. schedule of repayment and other terms. any violation of the provisions of the foregoing rules shall be subject to any or all of the following sanctions: (1) Restriction or prohibition on the QB from declaring dividends for noncompliance with the herein prescribed ceilings until the outstanding loans. security and appraisal thereof. Transitory provisions. 4312Q. 7653 (The New Central Bank Act).4335Q (Reserved) C. or a reproduction copy showing clearly the signatures of the approving directors: Provided. and (e) Names in print and signatures of the directors approving the resolution: Provided. renewed or restructured.12. No. the corporate secretary may issue a certification to this effect indicating the reason for the failure of the said director to sign the resolution. it shall be duly certified by the corporate secretary that it is a reproduction of the original written approval. (d) Names of the directors who participated in the deliberation of the meeting. e. 560 dated 31 January 2007) Secs. (b) Each of the directors voting for the approval of the loan. (2) For the duration of each violation. (b) Nature of the loan or other credit accommodation or guarantee. purpose. credit basis for such loan or other credit accommodation or guarantee. maturity. other credit accommodation or guarantee in excess of any of the ceilings prescribed above. and (4) all past due amounts. e. 622 dated 16 September 2008) § 4336Q. 622 dated 16 September 2008) § 4336Q.12. in which case. at least one (1) co-maker.4337Q. (As amended by Circular No.1 08. insurance fees. Credit card. except that a co-maker is not required when the principal borrower has the financial capacity and a good track record of paying his obligations. Default or delinquency. the “Minimum Amount Due” or “Minimum Payment Required” within two (2) cycle dates.§§ 4336Q .2 Proof of financial capacity of borrower (Deleted by Circular No. Shall mean any provision in the contract between the QB and the cardholder that gives the QB the right to demand the (Next page is Part III . the following rules and regulations shall govern the credit card operations of QBs and subsidiary/affiliate credit card companies.1 Definition of terms a.4 (Reserved) Sec. or payment of any amount less than. plate. Represents the total outstanding balance of credit cardholders arising from purchases of goods and services. Credit card receivables. annual membership/renewal fees as well as interest. aligned with global best practices. Shall mean non-payment of. if any. The BSP shall foster the development of consumer credit through innovative products such as credit cards under conditions of fair and sound consumer credit practices. d. Means the minimum amount that the credit cardholder needs to pay on or before the payment due date for a particular billing period/cycle as defined under the terms and conditions or reminders stated in the statement of account/ billing statement which may include: (1) total outstanding balance multiplied by the required payment percentage or a fixed amount whichever is higher.3 Signatories (Deleted by Circular No. 622 dated 16 September 2008) § 4336Q. c. (3) any amount in excess of the credit line. Acceleration clause.Page 15) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III .1 General guidelines (Deleted by Circular No. penalties.Page 14c . (2) any amount which is part of any fixed monthly installment that is charged to the card.31 the principal borrower and. labor or services on credit. cash advances. 622 dated 16 September 2008) § 4336Q. the “Total Amount Due” for the particular billing period as reflected in the monthly statement of account may be considered in default or delinquent. Towards this end. M i n i m u m a m o u n t d u e o r minimum payment required. 4337Q Credit Card Operations. coupon book or other credit device existing for the purpose of obtaining money. General Policy. The BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair dealings with customers. b. § 4337Q. Means any card. processing/service fees and other charges. property. Disposition of errors and/or questions about the billing statement/ statement of account and other customers’ complaints. j. g. Solicitation and application processing. m. by a quasi-bank or other financial institution of at least ten percent (10%) or more of the outstanding voting stock of the entity. § 4337Q. and q. f. or (4) Management contract or any arrangement granting power to the quasibank or other financial institution to direct or cause the direction of management and policies of the entity. (2) Interlocking directorship or officership. quasi-banks and subsidiary/affiliate credit card companies are required to establish an appropriate system for managing risk exposures from credit card operations which shall be documented in a complete and concise manner.2 Risk management system To safeguard their interests. i. The net take home pay of applicants who are employed. (3) Common stockholders owning at least ten percent (10%) of the outstanding voting stock of each financial institution and the entity. Written policies. policies and procedures and internal control. upgrade or downgrade of credit limit. c. Deferred payment program or special installment plans.Page 15 . o. k.4337Q. whether by permanent or temporary proxy or voting trust. Pre-approved cards. or vice-versa.3 05. Supplementary or extension cards. Accounts of DOSRI and employees. Collection of past due accounts. Cash advances. The risk management system shall cover the organizational setup. p.12. control or power to vote.3 Minimum requirements Before issuing credit cards. Lost or stolen cards and their replacement. except in cases involving independent directors as defined under existing regulations. or vice-versa. distribution and activation of cards.§§ 4337Q. cancellation and withdrawal or termination of card. h. Issuance. or the net worth or cash flow inferred from deposits of those who are Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . records and reports. Subsidiary refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. g. quasi-banks and/or their subsidiary/affiliate credit card companies must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments. § 4337Q.1 . Affiliate refers to an entity linked directly or indirectly to a quasi-bank or other financial institution through any one or a combination of any of the following: (1) Ownership. Renewal of cards. procedures and internal control guidelines shall be established on the following aspects of credit card operations: a. d. n. Handling of accounts for write-off. the net monthly receipts of those engaged in trade or business. l. accounting. or other similar contracts. b. Billing and payments. Dealings with marketing agents/ collection agents. Determination and approval of credit limits.31 obligation in full in case of default or nonpayment of any amount due or for whatever valid reason. Requirements for application. Suspension. e. f. controlled or held with the power to vote by a quasi-bank or other financial institution. non-finance charges. within which any credit extended may be repaid without interest. where one (1) or more periodic rates may be used to compute interest. i. the effective interest rate per annum.Page 16 e.4 Information to be disclosed. the percentage that the interest bears to the total amount to be financed expressed as a simple monthly or annual rate. g. Quasi-banks or their subsidiaries/affiliate credit card companies shall disclose to each person to whom the credit card privilege is extended in the agreement.4 05. the number of installments. The gross monthly income may also be used provided reasonable deductions are estimated for income taxes. and k. j. especially those solicited by third party representatives/ agents. All credit card applications. collection fees. the range of balances to which it is applicable. the following information: a. as the case may be. other fees. the method of determining the balance upon which interest and/or delinquency charges may be imposed. the default.. Manual of Regulations for Non-Bank Financial Institutions . which are paid or to be paid by the cardholder in connection with the transaction but which are not incident to the extension of credit. for transactions made in foreign currencies and/or outside the Philippines.12.31 neither employed nor engaged in trade or business or the credit behavior exhibited by the applicant from his other existing credit cards. premium contributions. credit investigation fees and attorney’s fees. including the time period.g. the method of determining the amount of interest and/or delinquency charges. MASTERCARD and/or VISA International rates on the day the item was processed/ posted to the billing statement. if any) including conversion commission. c. shall undergo a strict credit risk assessment process and the information stated thereon validated and verified by persons other than those handling marketing. § 4337Q. d. and/or other currency conversion charges and costs arising from the purchase by the card company of foreign currency to settle the customer’s transactions shall also be disclosed. such as membership/ renewal fees. f. and the corresponding simple annual rate. plus markup. definition or general description of verifiable blended exchange/conversion rates (e.4337Q. for dual currency accounts (peso and dollar billings). processing fees. on the outstanding balance of the obligation. or other lifestyle indicators such as but not limited to club memberships. the conditions under which interest may be imposed. ownership and location of residence and motor vehicle ownership shall be determined and used as basis for setting credit limits. loan amortizations and other deductions. each such rate. amount and due dates or periods of payment schedules to repay the indebtedness. prior to the imposition of the charges and to the extent applicable. including any minimum or fixed amount imposed as interest and/or delinquency charge. b.§§ 4337Q. late payment/penalty fees or similar delinquency-related charges payable in the event of late payments.3 . as well as payments made by credit cardholders in any currency other than the billing currency: the application of payments. Q Regulations Part III . for installment loans. h. the manner of conversion from the transaction currency and payment currency to Philippine pesos or billing currency. individually itemized. contract or any equivalent document governing the issuance or use of the credit card or any amendment thereto or in such other statement furnished to the cardholder from time to time. further.8 Late payment/penalty fees. No late payment or penalty fee shall be collected from cardholders unless the collection thereof is fully disclosed in the contract between the issuer and the cardholder: Provided. disclosure to collection agencies. counsels and other agents of the quasi-bank or card company to enforce its rights against the cardholder. if the contract between the issuer and the cardholder contains an “acceleration clause” and the total outstanding balance of the credit card is classified and reported as past due. § 4337Q. except under the following circumstances: a. upon orders of court of competent jurisdiction or any government office or agency authorized by law. That said late payment or penalty fees may be based on the total outstanding balance of the credit card obligation. disclosure to third party service providers solely for the purpose of assisting or rendering services to the quasi-bank or card company in the administration of its credit card business. release. § 4337Q. § 4337Q.5 Accrual of interest earned Interest accrued and/or booked shall be reversed and no accrual of interest shall be allowed ninety (90) days after the credit card receivable has become past due as defined in Subsec. Quasibanks or their subsidiary/affiliate credit card companies shall make available for inspection or examination by the appropriate SED of the BSP complete and accurate files on card applicant/cardholder to support the consideration for approval Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III .5 . The amount of finance charges in connection with any credit card transaction shall refer to interest charged to the cardholder. d. their subsidiaries and affiliates.11 05. credit card issuers.Page 17 .1. 4308Q.§§ 4337Q. § 4337Q. disclosure of information is with the consent of the cardholder or consumer. c.31 § 4337Q. if circumstances warrant. solely for the purpose of insuring the quasi-bank from cardholder default or other credit loss.6 Finance charges. Quasibanks or their subsidiary/affiliate credit card companies shall formulate criteria or parameters for suspension. b. submission or exchange of customer information with other financial institutions. revocation and reactivation of the right to use the card and shall include in their contract with cardholders a provision authorizing the issuer to suspend or terminate its effectivity. credit information bureaus. prior to the consummation of the transaction.7 Deferral charges. and f. The quasi-bank and the cardholder may.11 Inspection of records covering credit card transactions. or under such conditions as may be prescribed by the Monetary Board. § 4337Q. termination of effectivity and reactivation.4337Q.12.10 Suspension. § 4337Q. Quasi-banks and subsidiary/ affiliate credit card companies shall keep strictly confidential the data on the cardholder or consumer.9 Confidentiality of information. including amounts payable under installment terms or deferred payment schemes. That late payment or penalty fees shall be based on the unpaid minimum amount due or a prescribed minimum fixed amount: Provided. disclosure to third parties such as insurance companies. and the cardholder from fraud or unauthorized charges. e. agree in writing to a deferral of all or part of one (1) or more unpaid installments and the quasi-bank may collect a deferral charge which shall not exceed the rate previously disclosed pursuant to the provisions on disclosure. insults.9.12. and Manual of Regulations for Non-Bank Financial Institutions . Nothing in this Subsection shall be construed to prohibit any action by the quasi-bank/subsidiary credit card company to collect any amount which has not been indicated by the cardholder to contain a billing error or apply against the credit limit of the cardholder the amount indicated to be in error. they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous or untoward acts. or profane language which amount to a criminal act or offense under applicable laws. subsidiary/ affiliate credit card companies. d. the following conduct is a violation of this Subsection: a. Without limiting the general application of the foregoing. disclosure of the names of credit cardholders who allegedly refuse to pay debts. collection agencies. § 4337Q. § 4337Q. the use of obscenities. reputation. the use or threat of violence or other criminal means to harm the physical person. 4337Q. counsels and other agents may resort to all reasonable and legally permissible means to collect amounts due them under the credit card agreement: Provided. Within ten (10) calendar days from receipt of such written notice. or any part thereof. f. c.Page 18 investigation. communicating or threat to communicate to any person credit information which is known to be false.13 Handling of complaints Quasi-banks or subsidiary/affiliate credit card companies shall give cardholders at least twenty (20) calendar days from statement date to examine charges posted in his/her statement of account and inform the quasi-bank/subsidiary credit card companies in writing of any billing error or discrepancy.11 .31 of the application and determination of the credit limit which shall be in accordance with the verified debt repayment ability and/or net worth of the card applicant/ cardholder.14 Unfair collection practices. or property of any person. except as allowed under Subsec.4337Q. Quasi-banks. threat to take any action that cannot legally be taken. the quasi-bank/subsidiary credit card company shall send a written acknowledgement to the cardholder unless the action required is taken within such ten (10)-day period. as amended the use of his credit card will subject his deposit/s with the quasi-bank to offset against any amount/s due and payable on his credit card which have not been paid in accordance with the terms of the agreement/contract.§§ 4337Q. Not later than two (2) billing cycles or two (2) months which in no case shall exceed ninety (90) days after receipt of the notice and prior to taking any action to collect the contested amount.12 Offsets. the credit card issuer shall inform/notify the credit cardholder in the agreement. For purposes of transparency and adequate disclosure. contract or any equivalent document governing the issuance or use of the credit card that. e. quasi-banks/subsidiary credit card companies shall make appropriate corrections in their records and/or send a written explanation or clarification to the cardholder after conducting an Q Regulations Part III . That in the exercise of their rights and performance of duties. b. including failure to communicate that a debt is being disputed. § 4337Q. pursuant to the provisions of Articles 1278 to 1290 of the New Civil Code of the Philippines.14 05. any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a cardholder. Penalties and sanctions provided under Sections 36 and 37 of R. § 4337Q. except in special cases approved by the Monetary Board such as loans funded partly or wholly by foreign currency obligations.e. as well as those covered by petitions for suspension or for new plans of payment approved by the court or the SEC.. otherwise.M. change in maturity. making contact at unreasonable/ inconvenient times or hours which shall be defined as contact before 6:00 A.14 . or after 10:00 P. 7653. Violations of the provisions of this Section shall be subject to any or all of the following sanctions depending upon their severity: a. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . and c. The restoration to a performing loan shall only be effective after a satisfactory track record of payments of the required amortizations of principal and/or interest has been established. However.M.. collateral or increase in the face amount of the debt resulting from the capitalization of accrued interest/ accumulated charges. it shall be considered non-performing. and such other first class collaterals as may be deemed appropriate by the Monetary Board: Provided. the restructuring of loans granted to DOSRI shall be upon terms not less favorable to the quasi-bank than those offered to others. The modification may include.§§ 4337Q. taking into account their capacity to pay.A. No. Quasi-banks shall have full discretion in the restructuring of loans in order to provide flexibility in arranging the repayment of such loans without impairing or endangering the lending quasi-bank’s financial interest.15 Sanctions.4350Q (Reserved) D. 4351Q Restructured Loans.4351Q.1 05. when to consider performing/non-performing Restructured loans are loans the principal terms and conditions of which have been modified in accordance with a restructuring agreement setting forth a new plan of payment or a schedule of payment on a periodic basis. Items in litigation and loans subject of judicially-approved compromise. No. While agreements on loan restructuring should be considered as management tools to maintain or improve the soundness of the quasi-bank’s lending operations. with or without capitalized interest. A loan which is restructured shall be considered non-performing except: (1) When the loan is current and performing (i.A. b.Page 19 . Secs. unless the account is past due for more than sixty (60) days or the cardholder has given express permission or said times are the only reasonable or convenient opportunities for contact. with updated principal and interest payments) on the date of restructuring. interest rate. in which case. the loan shall retain its performing status. these should be drawn mainly to assist borrowers towards the settlement of their loan obligations. 4338Q .1 Definition. but is not limited to. RESTRUCTURED LOANS Sec.12. That a restructured loan. Disqualification of the quasi-bank concerned from the credit facilities of the BSP except as may be allowed under Section 84 of R. and (2) Fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon. shall not be classified as restructured loans.31 g. General Policy. 7653. § 4351Q. Prohibition of the quasi-bank concerned from the extension of additional credit accommodation against personal security. must be yielding a rate of interest equal to or greater than the quasi-bank’s average cost of funds at the date of restructuring. g. A second restructuring of a loan shall be allowed only if there are reasonable justifications: Provided that it shall be considered a non-performing loan and classified. b. and other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines..2 Procedural requirements a. from “Substandard” to “Loans Especially Mentioned”.Page 20 board as provided under existing rules and regulations. The term “first class collaterals” refers to assets and securities which have relatively stable and clearly definable value and/or greater liquidity and are free from lien/ encumbrance. That there are board-prescribed guidelines specifically on restructuring of loans: Provided. six (6) consecutive payments of the required amortizations of principal and/or interest must have been made. (2) Evidences of indebtedness of the Republic of the Philippines and of the BSP. However. such as viability of the business.1 . a satisfactory track record of payments of principal and/or interest shall mean three (3) consecutive payments of the required amortizations of principal and/or interest have been made. the quasi-bank shall encourage the borrower to improve the quality of the loan either by strengthening financial capacity or providing additional collateral. A restructured loan which has been restored to a performing loan status shall be immediately considered nonperforming in case of default of any principal or interest payment in accordance with Sec. (2) determination of the borrower’s capacity to pay. further. “Substandard”. The authority to approve the restructuring of loans may be delegated by the quasi-bank’s board of directors to a committee or officer(s): Provided. The real estate security and/or other first class collaterals offered shall be appraised at the time of restructuring to ensure that current market values are being used.2 05. in the case of a restructured loan with capitalized interest but not fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon or other first class collaterals. and (3) the nature and extent of protection of the quasi-bank’s exposure. e. c. In the restructuring process.31 For this purpose. 4308Q. Manual of Regulations for Non-Bank Financial Institutions . That said guidelines shall be submitted to the appropriate SED of the BSP within thirty (30) days following the date of approval thereof. (3) Hold-out on and/or assignment of deposit substitutes maintained in the lending institutions. loans previously approved by the executive committee as well as those granted to DOSRI shall be subject to approval by the Q Regulations Part III .4351Q.12. Real estate security shall be appraised by an independent appraisal company acceptable to the BSP and shall be reappraised every year thereafter. at least. § 4351Q. Loans restructured other than those approved by the board shall be reported to it for confirmation. if circumstances warrant an upgrading in accordance with the criteria under Appendix Q-10. The restoration to a performing loan status and/ or the upgrading of loan classification. However. such as: (1) Real estate.§§ 4351Q. A loan may be restructured subject to the approval of the quasi-bank’s board of directors in a resolution which shall embody. among other things: (1) the basis of or justification for the approval. shall only be allowed after a satisfactory track record of at least six (6) consecutive payments of the required amortization of principal and/or interest has been established. a.g. Officers shall refer to quasi-bank officers as defined in Sec. For this purpose.g. The classification of a loan prior to restructuring. if circumstances warrant an upgrading in accordance with the criteria in Appendix Q-10. at least. further. six (6) consecutive payments of the required amortizations of principal and/or interest must have been made. renew or extend any credit accommodation to its DOSRI whenever its combined capital accounts is deficient relative to risk assets held under Sec. or through an attorney-in-fact. No quasi-bank shall grant. "Doubtful" or "Loss”. 4116Q.31 (4) “Blue chip” shares of stocks.0 billion and with annual net earnings during the immediately preceding five (5) years. “Substandard". That restructured loans with capitalized interest shall be classified.1 Definitions. STOCKHOLDERS AND THEIR RELATED INTERESTS Sec. § 4351Q. 4352Q .2 . “Substandard” or “Doubtful” shall be retained: Provided.e. Stockholder shall refer to any stockholder of record in the books of the quasi-bank/trust entity.4356Q. That a loan that is not classified but which is non-performing prior to restructuring shall be classified. the issuer corporation must be a listed corporation with a net worth of at least P1. 4356Q General Policy. Directors shall refer to quasi-bank directors as defined in Sec. The upgrading of loan classification.1 05. in the case of a restructured loan with capitalized interest but not fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon or other first class collaterals. and (5) Such other collaterals that the Monetary Board may declare as first class collaterals from time to time. § 4356Q. That a more adverse classification may be given.. Dealings of a quasi-bank with any of its DOSRI shall be in the regular course of business and upon terms not less favorable to the quasibank than those offered to others. Secs. at least. “Substandard” and the required valuation reserves shall be set up accordingly: Provided. It is understood that the loan value to be assigned the collateral shall be as prescribed under existing regulations.12.4355Q (Reserved) E. renew or extend any credit accommodation to any of its DOSRI who has past due credit accommodations with the quasi-bank. For purposes of these regulations. “Loans Especially Mentioned”. shall only be effective after a satisfactory track record of payments of the required amortizations of principal and/or interest has been established. “Loans Especially Mentioned”: Provided. LOANS/CREDIT ACCOMMODATIONS TO DIRECTORS. c. finally.§§ 4351Q. Neither shall it grant. from “Substandard” to “Loans Especially Mentioned”. a satisfactory track record of payments of principal and/or interest shall mean three (3) consecutive payments of the required amortizations of principal and/or interest have been made. the following definitions shall apply. b. e. 4141Q. or any other person duly authorized by him or through Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III .. or whenever its paid-in capital is deficient relative to the required minimum capitalization. except those issued by the lending entity or by its parent company which owns more than fifty percent (50%) of its outstanding shares of stocks. acting personally. 4142Q. e. However..3 Classification. For this purpose. i. if the circumstances warrant it as provided under Appendix Q-10.Page 21 . OFFICERS. f. Unsecured loan. For this purpose. officer or stockholder concerned bears to the total paid-in capital of the quasi-bank: Provided. Manual of Regulations for Non-Bank Financial Institutions . borrowing or credit accommodation shall refer to any loan. or receivables arising from financial leases to the extent of the guaranty deposit plus sixty percent (60%) of the remaining value of the leased equipment. That as a basis for determining the individual ceiling referred to in Sec. assignment or pledge of government securities or readily marketable bonds and other highgrade debt securities except those issued by the lending entity. Outstanding loans to and placements with the quasi-bank shall refer to loans to and deposit substitutes of the quasi-bank which are not subject of an assignment or hold-out agreement. or credit accommodation shall refer to any loan. amount to one percent (1%) or more of the total subscribed capital stock of the quasi-bank/ trust entity. the remaining value of the equipment under lease shall be determined by dividing the acquisition cost by the original term of the lease and multiplying the resulting ratio by the unexpired portion of the term. assignment or any other encumbrance shall be deducted therefrom. discount. cash margin deposits. g. 4360Q. discount. (ii) a partnership in which the stockholder and/or the spouse and/or any of the aforementioned relatives is a general partner. standby letters of credit issued by foreign banks. or portion thereof referred to in Sec. 4357Q which is secured by real estate mortgage. and (iii) corporation. (2) Sales contract receivable arising out of sale of real property on credit wherein title to the property is retained by the quasi-bank.§ 4356Q. d. a secured loan. borrowing or credit accommodation shall likewise include: (1) Customer’s liability under import bills outstanding for not more than thirty (30) days from date of original entry. credit or advance. individual and/or collectively with the stockholdings of: (i) his spouse and/or relative within the first degree by consanguinity or affinity or legal adoption. association or firm of which the stockholder and/or his spouse and/or the aforementioned relatives own more than fifty percent (50%) of the total subscribed capital stock of such corporation. corresponding book value of the shares of stock of such director. borrowing. credit or advance. e. Book value of the paid-in capital contribution shall mean the proportional amount of the quasi-bank’s total capital accounts (net of such unbooked valuation reserves and other capital adjustments as may be required by the BSP) as the corresponding paid-in capital contribution of each director. For investment houses with quasibanking functions.12. 4357Q which is not secured in accordance with Item "f" above. and (3) Customer’s liability-import bills under trust receipts outstanding for not more than thirty (30) days from date of booking: Provided. That the booking under trust receipts shall have been made not later than the thirty-first (31st) day from the date of original entry referred to in Subitem (1) above. association or firm. Secured loan. or by its parent company which owns more than fifty percent (50%) of its outstanding shares of stocks. chattel Q Regulations Part III . whose stockholdings in the lending quasibank/trust entity. assignments of or hold-out on deposit substitutes issued by the lending entity.Page 22 mortgage on tangible assets. or portion thereof referred to in Sec.1 05. officer or stockholder which are the subject of pledge.31 a trustee designated pursuant to a proxy or voting trust or other similar contracts. Any other transaction as a result of which a director. The terms loan. Drawings against an existing letter of credit. or surety. renewal. as well as additional availments under a credit line or additional drawings against a letter of credit. Transactions with a foreign bank or other financial institution which has stockholding in the quasi-bank where the foreign bank or other financial institution acts as guarantor through the issuance of letters of credit. e. money borrowed and credit accommodations as used herein shall refer to transactions which involve the grant. b. f. etc. by any means whatsoever to pay money or its equivalent. officer or stockholder may be liable as a maker.4358Q 05.A. including. exchange or otherwise of any note. insurance. g. Leasing transactions under R. Any advance of unearned salary or unearned compensation for periods in excess of thirty (30) days. such as shares of stock. directly or indirectly. 5980. bill of exchange or other evidence of indebtedness upon which a director.§§ 4357Q . 4358Q Transactions Not Covered The terms loan. indorser. officer or stockholder becomes obligated or may become obligated to the lending quasi-bank.12. Advances against accrued compensation. as amended. guarantee letters or assignment of a deposit in a currency eligible as part of the international reserves and held in a bank in the Philippines to secure credit accommo-dations granted to another person or entity: Provided. c. Outstanding availments under an established credit line. c. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . credit or advance in any form whatsoever. acceptor. Sec. or for the purpose of providing payment of authorized travel. borrow. guarantor.31 Sec. d. Loans or other credit accommodations granted by another financial institution to such director. borrow. officer or stockholder from funds of the quasi-bank invested in the other institution’s trust or other department when there is a clear relationship between the transactions. The increase of an existing indebtedness. The sale of assets. Deposits of a quasi-bank with a bank. 4357Q Transactions Covered. That the transaction shall automatically be subject to the ceiling as herein provided once the DOSRI who is a party to the transaction becomes directly liable to the quasi-bank. The acquisition by discount. d. The discount of bills of exchange drawn in good faith against actually existing values. h.. draft. extension or increase of any loan.Page 23 . The increase in the amount of outstanding credit accommodation as a result of additional charges or advances made by the quasi-bank to protect its interests such as taxes. and e. legitimate expenses or other transactions for the account of the quasi-bank or for utilization of maternity and other leave credits. on credit. and shall include: a. whether domestic or foreign. and the discount of commercial or business paper actually owned by the person negotiating the same. which has stockholdings in the quasi-bank. purchase. the acquisition of export bills from any of its DOSRI which are drawn in accordance with the terms and conditions of the covering letters of credit: Provided. but not limited to. and i. drawer. That the foreign bank stockholder shall automatically be subject to the ceilings as herein provided in the event that its contingent liability as guarantor becomes a real liability. money borrowed or credit accommodation as used herein shall not refer to the following transactions: a. discount. No. b. 4357Q the borrower. as set by the quasi-bank for all other qualified credit cardholders on availments made for the same period on their credit cards. association or firm of which any or a group of directors. is a general partner. The credit card operations of quasi-banks shall not be subject to these regulations where the credit cardholder is a director. officer or stockholder of the lending quasi-bank sits as a representative of the quasi-bank in the board of directors of such corporation: Provided. fails to reimburse/pay the quasibank within the period mentioned herein. indorser or surety for loans from the quasi-bank. or stockholder or his spouse or relative within the first degree of consanguinity or affinity. on the outset. and (b) the director. or relative by legal adoption. Sec. That the quasi-bank representative shall not have any equity interest in the borrower corporation except for the minimum shares required by law. or his spouse is also a director or officer of such corporation. except when the mortgage.Page 24 (1) Spouse or relative within the first degree of consanguinity or affinity. indorser. or b. That the borrowing corporation under (i) or (ii) is not among those mentioned in Items "b(5)" and "b(6)" of this Section. officer. stockholders of the lending quasi- Manual of Regulations for Non-Bank Financial Institutions . to qualify a person as director of the corporation: Provided. officer or stockholder.4359Q 05. officer. (4) Corporation. or relative by legal adoption of a director. (5) Corporation. officer.31 § 4358Q. pledge or assignment covers only said co-owner’s undivided interest. or firm of which a director or officer of the quasibank. For purposes of this Section. officer or stockholder of the lending quasibank is a party to any of the transactions enumerated in Sec. or (ii) where the director. guarantor. officer or stockholder of the quasi-bank. That (a) the privilege of becoming a credit cardholder is open to all qualified persons on the basis of selective criteria which are applied by the quasi-bank to all applicants thereof. association or firm. However.1 Applicability to credit card operations. or surety is a: Q Regulations Part III . Indirect borrowing . (3) Co-owner with the director. rules and regulations. association. association or firm are listed and traded in the domestic stock exchange and less than fifty percent (50%) of the voting stock thereof is owned by any one (1) person or by persons related to each other within the third degree of consanguinity or affinity. of the property or interest or right mortgaged.If in any of the transactions in Sec. or if he acts as a guarantor. or if the loan or credit accommodation to another party is secured by a property interest or right of the director. stockholder or his spouse or relative within the first degree of consanguinity or affinity. opts for deferred payment scheme. and the availment is booked by the quasi-bank.12. 4357Q for himself or as a representative or agent of others. a. (2) Partnership of which a director. further. officers. except (i) where the securities of such corporation.§§ 4358Q.If the director. officer or stockholder/related interest concerned reimburses/pays the quasi-bank for the billed amount in full on or before the payment due date in the billing or statement of account. officer or stockholder of the quasi-bank or their related interests (DOSRI): Provided. the transaction shall be subject to applicable DOSRI regulations if the director. Direct borrowing . or by the by-laws of the corporation. pledged or assigned to secure the loans or credit accommodations. 4359Q Direct or Indirect Borrowings. b.1 . or stockholder/related interest concerned: a. or relative by legal adoption. a credit accommodation shall be considered a direct or indirect borrowing in accordance with the following criteria. or of the equity of such association or firm. the servicing and repayment Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . or covered by cash margin deposits or secured by evidences of indebtedness of the Republic of the Philippines or of the Bangko Sentral. 4360Q Individual Ceiling. Sec. In determining indirect borrowings as enumerated above. The total outstanding direct credit accommodations to each of the quasi-bank’s directors. whichever is lower. guarantor. SingleBorrower Limit. "b(3)". at any time. 4362Q Exclusions from Aggregate Ceiling. Other cases of direct/indirect borrowing shall be resolved on a case-tocase basis. or assignment of. quasi-banks shall be allowed to average their ceiling on unsecured loans and their outstanding unsecured loans every week. For the purpose of determining compliance with the ceiling on unsecured loans. "b(4)" and "b(5)" of this Section. indorser or surety is related to persons mentioned in Item "b(1)" of this Section or connected with any of the directors. That in no case shall the total unsecured direct and indirect borrowings of directors. officers or stockholders shall not exceed thirty percent (30%) of his total credit accommodations. collateral or security and other pertinent considerations. officers or stockholders. "b(4)". officers or stockholders of the quasi-bank in any of the capacities mentioned in Items "b(2)". whether direct or indirect.4362Q 05. or (6) Corporation. only those cases involving living relatives shall be considered. the BSP shall consider the credit standing of the borrower. "b(5)" and "b(6)" of this Section. stockholders or their related interests shall not exceed the SBL prescribed for quasibanks.shall not exceed 100% of combined capital accounts.Page 25 . representative. In evaluating requests for extension of loans in excess of the aggregate ceiling. credit accommodations of a quasibank to any one of its directors. Ceiling On Unsecured Loans. That unsecured credit accommodations to each of the quasibank’s directors. hold/ own more than twenty percent (20%) of the subscribed capital of such corporation. deposit substitutes in the lending quasi-bank. net of deferred income tax as defined in Item "i" of Subsec. viability of the projects financed by such loans in relation to national objectives. 4116Q.31 bank and/or their spouses or relatives within the first degree of consanguinity or affinity or relative by legal adoption. shall not exceed. Credit accommodations to the extent covered by a hold-out on. It shall be the responsibility of the quasi-bank concerned to ascertain whether the borrower.1 and such unbooked valuation reserves and other capital adjustments as may be required by the BSP: Provided. Sec. officers. Except with prior approval of the Monetary Board. The following credit accommodations shall be excluded in determining compliance with the aggregate ceiling: a.12. and stockholders exceed thirty percent (30%) of the aggregate ceiling or the outstanding direct/indirect loans thereto. or by other evidences of indebtedness or obligations. officers. excluding those granted under officers’ fringe benefit plans.§§ 4359Q . and placements with. 4361Q Aggregate Ceiling. or stockholders. the quasi-bank and the book value of his paidin capital contribution in the lending quasibank: Provided. association or firm wholly or majority-owned or controlled by any or a group of related entities mentioned in Items "b(2)". Notwithstanding the provisions of this Section. officers. Sec. an amount equivalent to the unencumbered portion of his loans to. the total outstanding borrowings of directors. Contents of the resolution. and (6) Such other information as may be required by the appropriate SED of the BSP. (3) Date of the resolution. others in any of the transactions under Sec. Manual of Regulations for Non-Bank Financial Institutions . Majority of the directors. interest rate. and c. 4364Q Procedural Requirements The following provisions shall apply if a director or officer is a party. for record purposes. b. The resolution of the board of directors shall contain the following information: (1) Name of the director or officer concerned and his relationship as regards the credit accommodation. Approval by the board. (4) Names of the directors who were present and who participated in the deliberations of the meeting. in behalf of a director who was present in the board meeting and who approved such resolution. to. copies of their officers’ fringe benefit plans to the appropriate department of the BSP. such as principal. (5) Names in print and signatures of the directors approving the resolution: Provided. directly or indirectly. extended under officers’ fringe benefit plans for the purpose of house. etc. The approval shall be manifested in a resolution passed by the board of directors duly assembled during a regular or special meeting for the purpose and made of record. when to obtain. amount. That the corporate secretary may sign. indorser. d. The computation of the majority of the directors. hospital. maturity. excluding the director concerned. 4363Q Credit Accommodations Under Officers’ Fringe Benefit Plans. c. in instances where such signature is necessary. spouse of borrower. to indicate that such resolution was approved by a majority of the directors. and other terms of the loan or credit accommodation. car. 4357Q be entered into. (3) Its stockholdings in the lending quasi-bank do not exceed thirty percent (30%) of the voting stock of the quasi-bank. shall not exceed thirty percent (30%) of the combined capital accounts of the lending entity: Provided. and appliance financing. (2) Nature of the loan or other credit accommodation. Credit accommodations to a corporate stockholder which meets all the following conditions: (1) The corporation is a non-financial institution. excluding the director concerned. no loan or other credit Q Regulations Part III . medical.§§ 4362Q .12. Credit accommodations granted under officers’ fringe benefit plans. (2) Its shares are listed and traded in the domestic stock exchanges. That quasi-banks shall submit. Sec. and other similar expenses. shall be based on the total number of directors of the quasi-bank. The aggregate outstanding liabilities to a quasibank of its officers. under a power-of-attorney.31 of which are fully guaranteed by the Republic of the Philippines.4364Q 05. how manifested. purpose. schedule of repayment. Sec. and meeting educational. b.Page 26 accommodation shall be granted nor any of the transactions under Sec. and (4) No person or group of persons related within the first degree of consanguinity or affinity holds/owns more than twenty percent (20%) of the subscribed capital of the corporation. Approval of the board of directors. Except with the prior written approval of the majority of the directors. credit basis for such loan or credit accommodation. security and appraisal thereof. or acts as the representative or agent of. as provided in its articles of incorporation and by-laws. computation of. a.. 4357Q. and/or guarantees to: (1) GOCCs. and/or GOCCs own at least twenty percent (20%) of the subscribed capital stock shall be considered indirect borrowings of the Republic of the Philippines and shall form part of the individual ceiling as well as the aggregate ceiling: Provided. 4360Q and 4361Q. That if a reproduction copy is to be submitted.Page 27 . 4365Q Sanctions. The copy may be a duplicate of the original.4366Q 08. and (2) corporations where the Republic of the Philippines. and stockholders of the QB: Provided. on its face or reverse side. subject to the following clarifications: a. a signed certification by the secretary that it is a reproduction of the original written approval. its agencies/departments/ bureaus. Loans. other credit accommodations. however. The provisions of Secs. directors. X326 to X337 of the Manual of Regulations for Banks (MORB). and (2) not subject to any ceiling. Restriction or prohibition on the QB from declaring dividends until the outstanding loans and other credit accommodations have been reduced to within the herein prescribed ceilings.§§ 4364Q . Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . That the disqualification may be lifted by the BSP. and guarantees to the Republic of the Philippines and/or its agencies/ departments/bureaus shall be considered: (1) non-risk. b. Transmittal of copy of board of directors’ approval. b. Application of (1) the borrowing director’s or officer’s share in the QB’s profit sharing program and (2) the share of the director voting for the approval of the loan or credit accommodation against the excess of such loan or credit accommodation over any of the herein prescribed ceilings for such period of time as may be approved by the Monetary Board. other credit accommodations. shall be submitted to the appropriate department of the SES within twenty (20) business days from the date of approval. The penalty for exceeding the individual ceiling. shall also apply to loans. That the following loans. A copy of the written approval of the board of directors.31 e.000 a day on (1) the lending QB and the director. officer. or a reproduction copy showing clearly the signatures of the approving directors: Provided. as the circumstances warrant. 4366Q Bank DOSRI Rules and Regulations Applicable to Government Borrowings in Government-Owned or Controlled QB. and guarantees granted to the National Government or Republic of the Philippines. its political subdivisions and instrumentalities as well as GOCCs.12. c. as herein required. other credit accommodations. Loans. it shall contain. aggregate ceiling and ceiling on unsecured loans shall be computed on the average amount of loans in excess of said ceilings during the same week. Disqualification of the directors voting for the approval of the loan or credit in excess of any of the ceilings prescribed in Secs. contents thereof. or stockholder whose borrowing exceeds his individual ceiling and (2) each of the directors voting for the approval of the loan or credit accommodation in excess of any of the ceilings prescribed in Secs. 4360Q and 4361Q from participating in the approval of loans or credit to officers. Any violation of the provisions of the foregoing rules shall be subject to any or all of the following sanctions: a. For the duration of each violation. Sec. to the extent applicable. imposition of a fine of one-tenth of one percent (1/10 of 1%) of the excess over the ceilings per day but not to exceed P30. and d. Sec. A. and from one another due to their fiscal independence from the national government. other credit accommodations. 4367Q . f. its agencies.4370Q 08. other credit accommodations and guarantees of the BSP shall be considered: (1) non-risk. A director who acts as a government representative in the lending institution shall not be excluded in the deliberation as well as in the determination of majority of the directors in cases of loans. and/or guarantees for the purpose of undertaking priority infrastructure projects consistent with the Medium-Term Development Plan/Medium-Term Public Investment Program of the National Government. officer or stockholder under existing DOSRI regulations. Q Regulations Part III . and/or guarantees granted to participating financial institutions (PFIs) in the lending programs of the government wherein the funds borrowed are intended for relending to other PFIs or end-user borrowers. other credit accommodations. (RESERVED) Manual of Regulations for Non-Bank Financial Institutions . and/or GOCCs own at least twenty percent (20%) of the subscribed capital stock.12. other government entities. and from one another due to the full autonomy in the exercise of their proprietary functions and in the management of their economic enterprises granted to them under the Local Government Code of the Philippines. not related interests of the Republic of the Philippines and/or its agencies/department/bureaus. Loans. for purposes of these regulations. and/or (ii) rediscounting and guarantee facilities for loans granted to the said sector or enterprises. subject to certain limitations provided by law. shall be excluded from the thirty percent (30%) ceiling on unsecured loans under Secs. (2) Loans. hence. and guarantees to the Republic of the Philippines and/or its agencies/departments/bureaus. and guarantees to the borrowing government entity other than the Republic of the Philippines. 635 dated 10 November 2008. hence. c. and/or guarantees granted for the purpose of providing (i) wholesale and retail loans to the agricultural sector.§§ 4366Q . small and medium enterprises (MSMEs). and micro. other credit accommodations. the BSP shall be considered an independent entity. 514 dated 06 March 2006 as amended by Circular Nos. and/or guarantees to GOCCs and corporations where the Republic of the Philippines. duly certified as such by the Secretary of Socio-Economic Planning. departments or bureaus where said director is also a director. (Circular No. its agencies/departments/bureaus. LGUs shall be considered separate from the Republic of the Philippines. X330 and X331 of the MORB. and (2) not subject to any ceiling. Local Water Districts (LWDs). not a related interest of the Republic of the Philippines and/or its agencies/departments/bureaus. No.Page 28 e. 580 dated 09 September 2007) Secs. and/or guarantees granted to state universities and colleges (SUCs) shall be excluded from the thirty percent (30%) ceiling on unsecured loans under Secs. In view of the fiscal autonomy granted under R. other credit accommodations. not a related interest of the Republic of the Philippines and/or its agencies/ departments/bureaus.4370Q (Reserved) F. 7653 and the independence prescribed under the Constitution. Loans. and (3) Loans.31 other credit accommodations. shall be considered separate from the Republic of the Philippines. g. other credit accommodations. hence. d. other government entities. X330 and X331 of the MORB: (1) Loans. and h. 616 dated 30 July 2008. although GOCCs. other credit accommodations. A director of the lending institution shall be excluded in the deliberation as well as in the determination of majority of the directors in cases of loans. Interbank loan transactions shall include. to the same ticket passed in its books on the day payment is made. however.2 Accounting procedures a. EQUITY INVESTMENTS Sec. 4377Q .1 Systems and procedures for interbank call loan transactions. QBs shall reconcile their demand deposit accounts with the BSP against monthly statements of account to be furnished by the BSP Comptrollership Department. 4376Q Interbank Loans. IBCL transactions of QBs shall be governed by the Agreement for the PhilPaSS executed between the BSP and the Investment Houses Association of the Philippines (IHAP) on 12 December 2002 and any subsequent amendments thereto. c. IBCL transactions shall be recorded by the borrowing QB as Bills Payable Interbank Call Loans. in the case of the lending QB. In order to avoid undue concentration of economic power. It shall contain the minimum data or information as required and shall be accomplished and submitted to the BSP Comptrollership Department in duplicate after having been duly signed and/or authenticated by authorized officers of the QB. 4371Q . b.31 Secs. (As superseded by the agreement between the BSP and IHAP dated 12 December 2002) § 4376Q. SPECIAL TYPES OF LOANS Sec. (b) borrowings evidenced by deposit substitute instruments. among other things. § 4376Q. further. The “Authority to Debit Slip” shall have a standard size of 4 3/4" x 8 1/2" and shall be orange in color. the total Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . QBs shall immediately pass the corresponding entries in their books and.4375Q (Reserved) G.§§ 4371Q .Page 29 . § 4376Q.4380Q (Reserved) H. That funds borrowed by QBs from trust departments of banks/investment houses shall be excluded from the herein definition of interbank loan transactions. (a) interbank call loan (IBCL) transactions. upon receipt of a copy of the transfer instruction reported as matched in the expanded MultiTransaction Interbank Payment System (MIPS2 Plus). (As superseded by the agreement between the BSP and IHAP dated 12 December 2002) Secs. That only IBCL transactions which are evidenced by interbank loan advices or repayment transfer tickets the settlement of which is effected by the BSP in the QBs’ respective demand deposit accounts with the BSP shall be eligible to one percent (1%) reserve: Provided. the borrowing QB shall attach the same to the corresponding ticket debitings its Due from BSP account in its books and. § 4376Q.12. Interbank loan transactions not evidenced by interbank loan advice or repayment transfer tickets and submitted to the BSP Comptrollership Department shall be reported to the BSP in the prescribed form. 4381Q Investment in Non-Allied Undertakings.4381Q 08.4 Settlement procedures Interbank loan transactions (call and term) among QBs shall be settled in accordance with the provisions of the Agreement for the PhilPaSS executed between the BSP and the IHAP on 12 December 2002 and any subsequent amendments thereto. and (c) purchases of receivables with recourse: Provided.3 Transfer of excess funds The prescribed “Authority to Debit Slip” shall be used by QBs in the transfer of their excess funds which are not otherwise lent out in the interbank loan market from their BSP reserve accounts to their operating accounts with their depository banks. 2 Purchase of commercial paper. Before purchasing registered commercial paper. Unregistered commercial papers may be sold.2 05. The Monetary Board shall determine in doubtful cases whether a particular claim is included within said phrase. including commissions. Ascertain that the registration number and expiry date indicated in the commercial paper are the same as those in the Certificate of Registration submitted. 4383Q Underwriting Exempted. on a without recourse basis.12. which exceed the limitation under this Section. QBs shall: a. This prohibition includes transactions between an investment house and its trust department. Require the issuing entity to submit a duly certified true copy of its Certificate of Registration and Authority to Issue Commercial Paper.31 equity investments in any single non-allied enterprise or industry of QBs.§§ 4381Q . OTHER OPERATIONS Sec. negotiate. discounted. Q Regulations Part III . discount. Sec. premiums. except as may be otherwise approved by the President of the Philippines. and whenever reduced. Non-allied enterprises are those allowed for UBs in the MORB. participations and other similar arrangements.1 Yield on purchase of receivables. Receivables and other obligations shall include claims collectible in money of any amount and maturity from domestic and foreign sources. That such equity holding shall be disposed of within two (2) years from acquisition by the investment house. Manual of Regulations for Non-Bank Financial Institutions . The rate of yield. unless such receivable.4385Q (Reserved) I. debt instrument and financial asset or claim is registered with the SEC. (RESERVED) Secs. § 4391Q. fees and other charges from the purchase of receivables and other obligations. UBs and their subsidiaries. note. and b. Sec.Page 30 § 4391Q. shall. that may be charged or received by QBs shall not be subject to any regulatory ceiling. whether or not the parent financial intermediaries have equity investments in the enterprise. debt instrument and any type of financial asset or claim. 4381Q shall not apply to inventories of equity securities arising out of firm underwriting commitments of investment houses: Provided.4390Q (Reserved) J. regardless of maturity. 4384Q . remain a minority in that enterprise. 4391Q Purchase of Receivables and Other Obligations. in whole or in part such as thru syndications. Secs. any note. assigned or negotiated by QBs to other financial intermediaries with quasi-banking functions. in any case. may be retained but shall not be increased percentage-wise. receivable. the total equity investments in and/ or loans to any single enterprise abroad by any QB shall not at any time exceed fifteen percent (15%) of the net worth of the investing QB. 4386Q . The following rules shall govern the purchase of receivables and other obligations. loan. 4382Q Investments Abroad. assign.4391Q. shall not thereafter be increased beyond the prescribed limitation. Equity investments as of 1 April 1980. or be a party in any capacity in any such transactions on a without recourse basis. loan. The limitations on equity investments under Sec. No QB shall sell. except government securities. Except as may be authorized by the Monetary Board. 0 million. 546 dated 17 November 2006 and 509 dated 01 February 2006) Sec. The following penalties and sanctions shall be imposed on FIs and concerned officers found to violate the provisions of these regulations: a. Suspension of quasi-banking authority for a period of six (6) months. That if the carrying amount of ROPA exceeds P5. § 4391Q. the appraisal of the foreclosed/purchased asset shall be conducted by an independent appraiser acceptable to the BSP.12.e.1. building. The following rules shall govern assets acquired in settlement of loans. valuation. The non-financial assets portion of ROPA shall remain in ROPA and shall be accounted for as follows: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . accounting procedures. and (2) Subsequent offenses – suspension of ninety (90) days without pay for officers responsible for the violation (As amended by Circular Nos. ROPA shall be booked initially at the carrying amount of the loan (i. 4602Q. M-2007-006 dated 28 February 2007. reckoned from the date the violation was committed up to the date it was corrected. other non-financial assets and financial assets (e. which allocated carrying amounts shall become their initial costs. b. and b. The classification. 626 dated 23 October 2008 and 585 dated 15 October 2007.. receivables from third party or equity interest in an entity) based on their fair values.. 4392Q Reverse Repurchase Agreements with the Bangko Sentral Reverse repo agreements may be effected with the BSP under its open market operations. 4394Q Acquired Assets in Settlement of Loans. sales and transfers of investments in debt securities and marketable equity securities shall be in accordance with the guidelines in Appendices Q-20 and Q-20-a.3 Investments in debt and marketable equity securities.1 08. Sec. Fines of P2.2 . Circular Nos.31 Any violation of the above rules and regulations shall be subject to any or all of the following sanctions: a. Penalties and sanctions. 4393Q (Reserved) Sec. subject to the terms and conditions in Subsec. (2) Upon execution of the Sheriff’s Certificate of Sale in case of extrajudicial foreclosure.1 Booking a. § 4394Q.000/day to be imposed on NBFIs for each violation. Sanctions to be imposed on concerned officers: (1) First offense – reprimand the officers responsible for the violation. c.g. Monetary penalty of P500 per day per transaction for each and every officer of the QB involved in any capacity in any transaction violative of these regulations. which take into account the fair value of the collateral) plus booked accrued interest less allowance for credit losses (computed based on PAS 39 provisioning requirements) plus transaction costs incurred upon acquisition (such as non-refundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase of the acquired real estate property): Provided.Page 31 .§§ 4391Q.4394Q. and b. 628 dated 31 October 2008. and (3) Upon notarization of the Deed of Dacion in case of dation in payment (dacion en pago). ROPA in settlement of loans through foreclosure or dation in payment shall be booked under the ROPA account as follows: (1) Upon entry of judgment in case of judicial foreclosure. outstanding loan balance adjusted for any unamortized premium or discount less allowance for credit losses computed based on PAS 39 provisioning requirements. 558 dated 22 January 2007. The carrying amount of ROPA shall be allocated to land. f. Associates and Joint Ventures and accounted for in accordance with the provisions of PAS 27. An inhouse appraisal of all ROPAs shall be made at least every other year: Provided.2 07. Non-cash payment for interest FIs that accept non-cash payments for interest on their borrowers’ loans shall book the acquired assets as ROPA. which shall be reckoned from the time of acquisition. 28 and 31. (2) Other non-financial assets shall be accounted for using the cost model under PAS 16 “Property Plant and Equipment”. AFS.1 . g. it must be properly Q Regulations Part III . INMES.12. The provisions of this Subsection shall be applied retroactively to all outstanding ROPAs and sales contract receivables: Provided: That for properties acquired before 1 January 2005. and (4) Land.2 Sales contract receivable a. (3) Buildings and other non-financial assets shall be depreciated over the remaining useful life of the assets. Unquoted Debt Securities Classified as Loans or Loans and Receivable and accounted for in accordance with the provisions of PAS 39. respectively. Sales Contract Receivable (SCR) shall be recorded based on the present value of the installment receivables discounted at the imputed rate of interest. Appraisal of properties. d.0 million. associates and joint ventures. That if the carrying amount of ROPA exceeds P5. respectively. 555 dated 12 January 2007 and 520 dated 20 March 2006) § 4394Q. which shall be booked under Equity Investments in Subsidiaries. DFVPL. If the amount of ROPA to be booked exceeds P5. the carrying amount of the acquired properties when initially booked under ROPA shall be the cost subject to depreciation and impairment testing. the appraisal of the foreclosed/purchased asset shall be conducted by an independent appraiser acceptable to the BSP. buildings and other non-financial assets shall be subject to the impairment provisions of PAS 36 “Impairment”. except interests in subsidiaries. Financial assets. shall be reclassified and booked according to intention under HFT.§§ 4394Q. the appraisal must be conducted by an independent appraiser acceptable to the BSP.31 (1) Land and buildings shall be accounted for using the cost model under PAS 40 “Investment Property”. e. HTM.4394Q. Discount shall be accreted over the life of the SCR by crediting interest income using Manual of Regulations for Non-Bank Financial Institutions . while probable claims against the borrower arising from the foreclosure of mortgaged properties shall be lodged under the contingent account “Deficiency Claims Receivable”. That immediate re-appraisal shall be conducted on ROPAs which materially decline in value. h. ROPAs that comply with the provisions of PFRS 5 “Non-Current Assets Held for Sale” shall be reclassified and accounted for as such. (As amended by Circular Nos. The carrying amount of ROPA shall be allocated in accordance with Item “b” and shall be subsequently accounted for in accordance with Item “c” of this Subsection.0 million.Page 32 appraised to determine its true economic value. which shall not exceed ten (10) years and three (3) years from the date of acquisition. The amount to be booked as ROPA shall be the booked accrued interest less allowance for credit losses (computed based on PAS 39 provisioning requirements): Provided. Before foreclosing or acquiring any property in settlement of loans. Claims arising from deficiency judgments rendered in connection with the foreclosure of mortgaged properties shall be lodged under the real account “Deficiency Judgment Receivable”. Any difference between the present value of the SCR and the derecognized assets shall be recognized in profit or loss at the date of sale in accordance with the provisions of PAS 18 “Revenue” Provided.§ 4394Q. That SCR shall be subject to impairment provision of PAS 39. furthermore. That a “Sales Contract Receivable” account shall be automatically classified “Substandard” and considered non-performing in case of non-payment of any amortization due: Provided. The provisions of this Section shall be applied retroactively to all outstanding ROPAs and SCRs: Provided: That for properties acquired before 1 January 2005. and (4) That there is no installment payment in arrear either on principal or interest. That a “Sales Contract Receivable” which has been classified “Substandard” and considered non-performing due to nonpayment of any amortization due may only be upgraded/restored to unclassified and/or performing status after a satisfactory track record of at least three (3) consecutive payments of the required amortization of principal and/or interest has been established. (2) That payment of the principal must be in equal installments or in diminishing amounts and with maximum intervals of one (1) year. further. 520 dated 20 March 2006) (Next page is Part III .Page 32a .31 the effective interest method. Provided.12. not subject to classification: (1) That there has been a down-payment of at least twenty percent (20%) of the agreed selling price or in the absence thereof. which shall be reckoned from the time of acquisition. (3) That any grace period in the payment of principal shall not be more than two (2) years. b. SCRs which meet all the requirements/conditions enumerated below are hereby considered performing assets and therefore.2 06. the carrying amount of the acquired properties when initially booked under ROPA shall be the cost subject to depreciation and impairment testing. the installment payments on the principal had already amounted to at least twenty percent (20%) of the agreed selling price. (As amended by Circular No.Page 33) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . 4394Q. (2) A jointly-controlled entity. Statement of policy. A QB desiring to enter into a JVA with a developer for the purpose of developing its ROPAs and/or other properties acquired as a consequence of merger/consolidation shall comply with the following: (1) The JVA shall be approved by the board of directors of the QB. For purposes of this Subsection. Under this form of joint venture. The QB contributes said properties to the undertaking while the developer contributes all the development funds. which involves the establishment of a new juridical entity. it does not. The QB and the developer shall be bound by the contract that establishes joint control of the undertaking. d. (2) The QB’s contribution to the joint venture. absolutely control the undertaking but only acts in accordance with the authorities granted to him under the JVA. preferably a corporation that is separate and distinct from the QB and the developer. (d) sharing in the assets of the joint venture particularly in the developed/ subdivided lots should there still be unsold lots at the time of termination of the joint venture. where applicable. b.3 . It is the policy of the BSP to encourage QBs to dispose of their ROPA in settlement of loans and other advances either through foreclosure or dacion en pago as well as other properties acquired as a consequence of a merger/ consolidation which are no longer necessary for their quasi-banking operations. shall be limited to ROPAs and properties acquired as a consequence of the QB’s merger/consolidation with another QB/ financial institution. partnership or other entity. Requirements and limitations in a joint venture. Although the developer may be designated as operator or manager of the undertaking. to sell the individual lots under a special power of attorney. Towards this end. the rights and obligations of the QB and the developer shall be governed primarily by their contract that must clearly specify the following: (a) authority of the developer to develop/subdivide the property and subsequently. equipment. (b) sharing in the sales proceeds of the developed ROPAs or in the developed lots. joint venture shall refer to a contractual arrangement/undertaking between a QB and a duly registered real estate development company (developer) for the purpose of developing the abovementioned properties of the QB.Page 33 .12.15 Joint venture of quasibanks with real estate development companies a. subject to the requirements prescribed under this Subsection. and (e) name under which the subdivided lots shall be registered pending their sale. A jointly controlled corporation may be established either for the purpose of developing properties of QBs for immediate sale or converting them into earning assets such as hotels and shopping malls. c.31 §§ 4394Q. technical expertise.§§ 4394Q.15 06. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . A QB and a developer may undertake a joint venture under the following forms: (1) A jointly-controlled operation/ undertaking. Forms of a joint venture. resources.4394Q. or a financial structure that is separate from the QB and the developer themselves. however. which does not involve the establishment of a corporation. QBs are hereby authorized to enter into Joint Venture Agreements (JVA) with real estate development companies for the development of said properties. (c) sharing in taxes. personnel and all other requirements desired or needed for the implementation and completion of the undertaking including marketing. (3) The QB shall not recognize income out of its contribution to the joint venture.3 .14 (Reserved) §§ 4394Q. in whatever form undertaken. the QB shall book the properties contributed to the undertaking as investment pursuant to the provisions of PAS 31. (3) Relationship of the QB with the developer. g. (4 List and brief description of the properties to be contributed by the QB including their market values. (6) The QB shall secure prior Monetary Board approval of the JVA. which does not involve the establishment of a corporation or other entity. Non-financial allied undertaking All types of QBs are hereby authorized to invest in the equities of companies engaged Q Regulations Part III . (2) Name of the principal stockholders and officers as well as members of the board of directors of said company. (1) In a joint venture in the form of a jointly controlled operations/undertaking. (2) In a joint venture in which a corporation is created. the regular provisioning against probable losses required under existing regulations may be discontinued upon execution and implementation of the JVA. Accounting treatment. f. It shall also recognize its interest in the corporation using the proportionate consolidation method or the equity method as long as it continues to have joint control over the corporation: Provided. Accounting treatment of the properties contributed by a QB to a joint venture or invested in the equities of developers.15 06. the concerned QB shall submit an application for Monetary Board approval to the appropriate department of the SES. (5) Certification by the QB’s president or officer of equivalent rank that the JVA is strictly in compliance or will strictly comply with the requirements of this Subsection.Page 34 in real estate development as a nonfinancial allied undertaking. (2) Investments shall be subject to existing BSP requirements applicable to investments in non-financial allied undertakings.31 regardless of the agreed valuation of said properties. subject to the following conditions: (1) Investments shall be limited to ROPAs and other properties acquired as a consequence of a QB’s merger/ consolidation with another QB/FI.§ 4394Q. For that purpose. The excess of the value of the capital stock received by the QB over the book value of its invested properties shall be booked as “Deferred Credits”. The excess of the value of the capital stock received by the QB over the book value Manual of Regulations for Non-Bank Financial Institutions . and (3) If there is already an existing subsidiary or affiliate relationship between the QB and the investee corporation prior to the investment. (5) The JVA or contractual arrangement shall clearly stipulate the rights and obligations of the QB and the developer. the QB shall not recognize income out of its invested properties. A QB desiring to enter into a JVA with a developer for the purpose of developing its ROPAs and other properties acquired as a consequence of its merger/ consolidation with another QB/FI shall secure prior Monetary Board approval of said agreement. and (6) Such other documents/information that the concerned department of the SES may require. if any. The application shall be signed by the QB’s president or officer of equivalent rank and shall be accompanied by the following documents/information: (1) The name of the developer. book values and the valuation agreed upon under the proposed JVA. the QB shall continue to recognize in its books the properties contributed to the undertaking. e. (4) The QB shall not provide funds to the joint venture either as a loan or capital contribution. However.12. That the QB shall not recognize income out of its contribution to the joint venture. Application for authority to enter into JVA. 4396Q Transfer/Sale of NonPerforming Assets to a Special Purpose Vehicle or to an Individual. 9343 are presented in Appendix Q-28b.31 of the contributed properties shall be credited to the account “Deferred Credits”. regardless of the agreed valuation of said properties. The significant timelines relative to the implementation of R. also known as the “Special Purpose Vehicle Act”. (Circular No. MISCELLANEOUS PROVISIONS Sec. No. 4397Q . A. 7653. as well as those which may be acquired by QBs in settlement of non-performing or past due loans and advances outstanding. 36 and 37 of R. The accounting guidelines on the sale of NPAs to SPVs and to qualified individuals for housing under the SPV Act of 2002 are presented in Appendix Q-28-a.4399Q 08. any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. i.12.15 . (3) Properties invested in equities of developers shall be booked in accordance with the PAS: Provided. No. 9182.A. 9182 are presented in Appendix Q-28. The provisions of this Subsection shall apply to ROPAs existing.§§ 4394Q. 7653.A.4398Q (Reserved) Sec. for the purpose of obtaining the Certificate of Eligibility (COE) which is required to avail of the incentives provided under R. The excess of the agreed valuation of said properties over their book value shall be booked as “Deferred Credits”.Page 35 . Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part III . That the QB shall not recognize income out of the properties invested if there is already an existing subsidiary or affiliate relationship between the QB and the investee corporation prior to the investment.A. A. (As amended by M-2008-014 dated 17 March 2008. No. 7653 on QBs. The guidelines for the imposition of monetary penalty for violations/offenses with sanctions falling under Section 37 of R. No. as amended by R. h. No. 4395Q (Reserved) K. Any violation of the provisions of this Subsection and/or any misrepresentation in the certification and information required to be submitted to the BSP under this Subsection shall subject the QB and the officer or officers responsible therefore. No. their directors and/or officers are shown in Appendix Q-39. M-2007-013 dated 11 May 2007 and M-2006. M-2008-005 dated 04 February 2008. The procedures governing the transfer/sale of non-performing assets (NPAs) to a Special Purpose Vehicle (SPV) or to an individual that involves a single family residential unit. Coverage. 518 dated 09 March 2006) Sec. to the penalties provided under Sections 35. Sanctions.001 dated 11 May 2006) Secs. or transactions involving dacion en pago by the borrower or third party of a non-performing loan (NPL). 4399Q General Provision on Sanctions Unless otherwise provided for. as of 09 March 2006 and to properties acquired as a consequence of merger or consolidation which are outstanding in the books of QBs as of said date. Trust and Other Fiduciary Business shall apply to institutions authorized to engage in trust and other fiduciary business including investment management activities. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration. receivership and other similar services which do not create or result Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . An institution incorporated or authorized to engage in trust and fiduciary business is under no obligation. Policies predicated upon this principle are directed towards confidentiality.. For purposes of regulating the operations of trust and other fiduciary business and investment management activities. other fiduciary and investment management accounts (IMAs) in Appendix Q-48 to promote efficiency in administration and operation. scrupulous care. executorship. the following shall have the meaning indicated. holding.Page 1 . (As amended by Circular No. safety and prudent management of property including reasonable probability of income with proper accounting and appropriate reporting thereon. guardianship. Practices are designed in accordance with the basic standards for trust. properties and estates. investment houses (IHs) and trust corporations) allowed by law to perform such operations. b. benefit or advantage of the trustor or of others called beneficiaries. when specially equipped to render such service and upon full appreciation of the responsibilities involved. OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT ACTIVITIES Section 4401Q Statement of Principles The cardinal principle common to all trust and other fiduciary relationships is fidelity.31 PART FOUR TRUST.4403Q 08. It shall be ready and willing to give full disclosure of the services being offered and shall conduct its dealing with transparency. 618 dated 20 August 2008) Sec. other fiduciary business and investment management activities (as these terms are defined in Sec. to accept any such business being offered nor has it the right to accept if the same is contrary to law. General Provisions shall apply to both. Sec. 4402Q Scope of Regulations. unless the context clearly connotes otherwise. administration and conduct of trust. management of funds and/or properties of the trustor by the trustee for the use. These regulations shall govern the grant of authority to and the management. Other fiduciary business shall refer to any activity of trust-licensed institutions resulting from a contract or agreement whereby the institution binds itself to render services or to act in a representative capacity such as in an agency. and to maintain absolute separation of property free from any intrusion of conflict of interest. to adhere and conform to the terms of the instrument or contract. 4403Q) of NBFIs (e. and C. The regulations are divided into three (3) Sub-Parts where: A.§§ 4401Q . B. Investment Management Activities shall apply to institutions without trust authority but engaged in investment management activities. Harmonious relationship shall likewise be pursued with other professions to achieve the common goal of mutual service to the public and protection of its interest. either legal or moral. administratorship of wills. 4403Q Definitions. regulations.g.12. rules. public order and public policy. a. It shall advertise its services in a dignified manner and enter such business only when demand for such service is evident. r. Q Regulations Part IV . o. division or any aggrupation which carries out the trust and other fiduciary business of an institution.31 in a trusteeship. t. Agency shall refer to a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another. consultant or administrator of financial or investment management.Page 2 k. j. Trustee is any person who holds legal title to the funds and/or property of a trust. with the consent or authority of the latter. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the institution (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial or managing agent. group.12. Trustor is any person who creates a trust. u. Investment Management Officer shall refer to the designated head or officerin-charge of the investment management department of an institution which does not have the authority to engage in trust and other fiduciary business. shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business. under a contract to enter into transactions in his behalf. i. group. n. Investment Manager shall refer to any person or entity engaged in investment management activities as herein defined. d. Trust account shall refer to an account where transactions arising from a trusteeship are kept and recorded. Trust Department shall refer to the department. unit. consultancy or any similar arrangement which does not create or result in a trusteeship. Beneficiary is any person for whose benefit a trust is created. f. g. Fiduciary account shall refer to an account where transactions arising from any of the other fiduciary businesses are kept and recorded. e.§§ 4403Q 05. advisory. Trust is a relationship or an arrangement whereby a person called a trustee is appointed by a person called a trustor to administer. Agent shall refer to a person who acts in representation or on behalf of another person with the latter's authority. p. Investment management account shall refer to an account where transactions Manual of Regulations for Non-Bank Financial Institutions . Trust agreement is an instrument in writing covering the terms and conditions of the trust. m. c. unit. adviser. division or any aggrupation which carries out the investment management activities of an institution that does not have an authority to engage in trust and other fiduciary business. Trust Officer shall refer to the designated head or officer-in-charge of the trust department. Fiduciary shall refer to any person or entity engaged in any of the other fiduciary business as herein defined where no trustor-trustee relation exists. q. which are considered as among other fiduciary business. hold and manage funds and/or property of the trustor for the benefit of a beneficiary. exclusively for the collective investment and reinvestment of certain money representing participations in the plan received by it in its capacity as the trustee. Investment management activities. Common Trust Fund (CTF) shall refer to a fund maintained by an institution authorized to perform trust functions under a written and formally established plan. Principal shall refer to the person who grants authority to another person called an agent. l. s. Investment Management Department shall refer to the department. office. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of such institution. h. without having obtained the required authority to do so. whether as its primary. shall comply with the following requirements: a. If an entity is found to be engaged in unauthorized trust and other fiduciary business and/or investment management activities. The applicant has been duly licensed or incorporated as an FI by the appropriate government agency or created by special law or charter. 3 dated 16 February 2006 and 14 dated 24 October 2000.Page 3 . 4404Q Authority to Perform Trust and Other Fiduciary Business. or unit which shall conduct the trust and other fiduciary business. officers and staff within the organization. b. SEC Memorandum Circular Nos. before it may engage in trust and other fiduciary business. TRUST AND OTHER FIDUCIARY BUSINESS Sec. among other things. acting as trustee or administering any trust or holding property in trust or on deposit for the use. 4106Q. subject to the implementing guidelines to be issued thereon. beneficiary or client. the Monetary Board may impose administrative sanctions against such entity or its principal officers and/or majority stockholders or proceed against them in accordance with law. Starting year 2001. combined capital accounts shall have the same meaning as in Sec. office. requiring the transfer or turnover of any trust and other fiduciary and/or IMA to duly incorporated and licensed entities of the choice of the trustor. (As amended by CL-2008-078 dated 15 December 2008.31 arising from investment management activities are kept and recorded. 5 dated 17 July 2008. (2) The creation of a trust committee. the words trust.D. as amended. With prior approval of the Monetary Board.§§ 4403Q . include the purpose or power to engage in trust and other fiduciary business. No. as the case may be.1 08. 129. or in behalf of others.4404Q. and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units. The Monetary Board may take such action as it may deem proper such as. The applicant has combined capital accounts of not less than P250 million or such amount as may be required by the Monetary Board or other regulatory agency. Entities whose articles of incorporation1 or any amendments thereto. CL-2008-053 dated 21 August 2008 and CL-2008-007 dated 21 January 2008) § 4404Q. 8791. the appointment of a trust officer and subordinate officers of the trust department. An institution. For this purpose. shall secure the prior favorable recommendation of the Monetary Board pursuant to Section 17 of the Corporation Code. No.A. secondary or incidental business. trust corporations and IHs may engage in trust and other fiduciary business under Chapter IX of R. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV .12. d. trust company. as amended and Section 7 of P. but may not be limited to. The by-laws of the institution shall include.1 Prerequisites for engaging in trust and other fiduciary business. trust corporation. c. trust plan or words of similar 1 import. The articles of incorporation or charter of the institution shall include among its powers or purposes. provisions on the following: (1) The organization plan or structure of the department. No entity shall advertise or represent itself as being engaged in trust and other fiduciary business or in investment management activities or represent itself as trustee or investment manager or use words of similar import and/or use in connection with its business title. A. IHs authorized to engage in trust and other fiduciary business shall renew their existing licenses yearly. (3) It has not incurred net weekly reserve deficiency against deposit substitutes during the last six (6) months immediately preceding the date of application.Page 4 BSP and it has not been cited for serious violations or exceptions affecting its solvency. and (b) Primary and secondary reserves to Bills Payable. N a m e s a n d p o s i t i o n s o f individuals designated as chairman and members of the trust committee. as well as with other requirements under existing regulations. as follows: (a) Primary reserves to Bills Payable. Organization chart of the trust department which shall carry out the trust and other fiduciary business of the institution. where primary reserves consist of cash on hand..e.§§ 4404Q.1. liquidity floor and ceilings on DOSRI loans during the last six (6) months immediately preceding the date of application. COCIs. its rate of return on equity is at least ten percent (10%). and (9) It has shown substantial compliance with other pertinent laws. (7) It has corrected as of the date of application the violations noted in its latest examination related to the single borrower’s loan limit and all other ceilings prescribed by the BSP. and (ii) The substitution of the reserve and liquidity floor requirements with the cash ratio.1 . liquidity and profitability. (4) The ratio of its total NPLs to its gross loan portfolio as of the date of filing of application does not exceed the industry average as of the end of the quarter immediately preceding the date of application. Government securities acceptable to the BSP amounting to P500. policies and instructions of the Q Regulations Part IV .2 Pre-operating requirements An institution authorized to engage in trust and other fiduciary business shall. submit to the BSP the following: a.12. cash in vault.2 05.4404Q.31 e. An applicant that fails in this respect shall be required to show compliance for another test period of the same duration. 4405Q. due from the BSP and due from banks. i. (5) It does not have any past due obligation with the BSP or with any government or non-government FI. T-Bills and other government securities. trust Manual of Regulations for Non-Bank Financial Institutions . Where the applicant is not authorized to engage in quasi-banking functions: (i) The adoption of a formula or criteria for QBs in the determination of compliance with the capital-to-risk assets ratio and ceilings on loans to DOSRI.000 as minimum basic security deposit for the faithful performance of trust and other fiduciary duties required under Subsec. (8) It does not have float items outstanding for more than sixty (60) calendar days in the “Due From/To Head Office/Branches” accounts and the “Due from Bangko Sentral” account exceeding one percent (1%) of its total resources as of the end of the month immediately preceding the date of application. Compliance with the foregoing. b. and c. § 4404Q. shall be maintained up to the time the trust license is granted. (6) It has not engaged in unsafe and unsound practice/s during the year immediately preceding the date of application. Where the applicant is authorized to engage in quasi-banking functions. before engaging in actual operations. it shall also meet the following additional requirements: (1) Its operations during the year immediately preceding the filing of the application have been profitable. rules and regulations. (2) It has continuously complied with its net worth-to-risk assets ratio. and where secondary reserves consist of BSP supported government securities. 0 billion five (5)-year regular series and up to P3.Page 5 . Securities backed by the unreleased Internal Revenue Allotments (IRA) of LGUs (issued by a Special Purpose Trust administered by the DBP under the IRA Monetization Program of the Union of Local Authorities of the Philippines) the release of which IRA on scheduled date of payment has been certified by the DBM as not being subject to any conditionalities: Provided. That at no time shall such deposit be less than P500.4405Q. Tobacco Excise Tax Receivable Monetization Program Investment Certificates (TEXTR Certificates) backed by receivables representing the unreleased portion of the obligation of the National Government to Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV .and Ten (10) . and not utilized for any other purpose: Provided. Evidences of indebtedness of the Republic of the Philippines and of the BSP and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. c. Five (5) . unencumbered. Scripless securities under Registry of Scripless Securities (RoSS) system of the Bureau of Treasury (BTr) may be used as basic security deposit for trust duties using the guidelines in Appendix Q-21. An institution authorized to engage in trust and other fiduciary business shall deposit with the BSP eligible government securities as security for the faithful performance of its trust and other fiduciary duties equivalent to at least one percent (1%) of the book value of the total volume of trust. f.2 06.000. regardless of remaining maturities. Sec.31 officer and other subordinate officers of the trust department with their respective bio-data and statement of duties and responsibilities. Zero Coupon Bond Issue by the HGC of up to P7. the remaining maturities of the securities shall not exceed three (3) years.2 . That such securities shall have remaining maturities of not more than three (3) years from the date of deposit with the BSP.§§ 4404Q. That for reserve for trust and other fiduciary duties. That they meet the three (3)-year remaining maturity requirement to ensure that such bonds are liquid: Provided. That such securities shall be free. That such securities shall be eligible only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date): Provided. and e. d. 4405Q Security for the Faithful Performance of Trust and Other Fiduciary Business § 4405Q. and such other kinds of securities which may be declared eligible by the Monetary Board: Provided. NDC Agri-Agra ERAP Bonds. That such bonds shall qualify as eligible reserve for trust and other fiduciary duties only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date). b.year Special Purpose Treasury Bonds (SPTBs) provided such bonds shall not be hypothecated in any way or earmarked for any other purpose and they meet the three (3)-year remaining maturity requirement to ensure that such bonds are liquid. further.12. further.0 billion seven (7)-year special series to finance its guaranty servicing of socialized and low-cost housing projects: Provided.2 Eligible securities Government securities which shall be deposited in compliance with the above basic security deposit shall consist of: a.1 Basic security deposit. § 4405Q. other fiduciary and investment management assets: Provided. further. 00 P800.4405Q. The base amount for the basic security deposit shall be the average of the month-end balances of total trust.000.250. Securities received. pursuant to the Domestic Debt Exchange Offer of the Republic of the Philippines.A.85 billion and covering the years 2001 and 2002: Provided.000.000.00 P5.3 Valuation of securities and basis of computation of the basic security deposit requirement. The trustee or fiduciary shall have thirty (30) calendar days after the end of every calendar quarter within which to deposit with the BSP the securities required under this Section.00 P3. that is. g.00 P9.000.000. Monetary penalty/ies: Offense Trust Third and First Second Asset Size subsequent offense(s) Up to P500 P600. and from renewing expiring trust and other fiduciary contracts up to the time the violation is corrected.00 P4.00 P2.00 million Above Penalty per Calendar Day QBs with Full Trust Authority and with Trust Assets of its LGUs for their share of the Tobacco Excise Taxes under R. Manual of Regulations for Non-Bank Financial Institutions . For purposes of determining compliance with the basic security deposit under this Section. § 4405Q.warning that subsequent violations shall be dealt with more severely. investment management and other fiduciary assets of the immediately preceding calendar quarter.000.4 Compliance period.500.000. That such securities shall be eligible only to the extent of the present value of the securities computed using the original yield to maturity as of auction/issue date.Prohibition against the acceptance of new trust and other fiduciary accounts. 7171 amounting to P1.000. Non-monetary penalty beginning with the third offense (all QBs) .00 P50 billion P8.000. On the QB: i. cost as increased or decreased by the corresponding discount or premium amortization. P500 million but not exceeding P1 billion Above P1 billion but not exceeding P10 billion Above P10 billion but not exceeding P50 billion Above ii.00 P1.00 P1. b.4 08.000. in exchange for securities that are eligible reserves for trust duties. sanctions.§§ 4405Q. the amount of securities so deposited shall be based on their book value. On the trust officer and/or other officer(s) responsible for the deficiency/ non-compliance: (1) First offense .31 (As amended by Circular No.2 . No.12.00 P7.00 P700. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of trust and other fiduciary duties: Q Regulations Part IV . 509 dated 01 February 2006) § 4405Q.00 P1.00 P10.Page 6 a.00 P6. written reprimand with a stern warning that subsequent violations shall be subject to suspension. exchange. or withdrawals from.31 (2) Second offense . without the need to liquidate all assets of the funds.5 Reserves against pesodenominated Common Trust Funds (CTFs) and Trust and Other Fiduciary Accounts (TOFA) . Reserves against peso-denominated CTFs. (i) Short-term market-yielding government securities purchased directly from the BSP-Treasury Department (TD). 617 dated 30 July 2008 and 585 dated 15 October 2007) § 4405Q. and/or the income. are being distributed among the participants of the funds. (b) The funds are managed/administered as a vehicle for collective investment and reinvestment. any offense committed outside the preceding three (3) year or twelve (12) quarter-period shall be considered as the first offense: Provided. The reserves to be maintained shall be as follows: (i) Regular reserves 10%1 (ii) Liquidity reserves 11%2 The liquidity reserve shall be maintained in the RDA with the BSP. further. as evidence may warrant. and (d) Investments/contributions to.sixty (60) calendar day-suspension without pay. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . (c) The trustee/administrator/agent has the exclusive management and control over the funds and the sole right at any time to sell. all offenses committed by him in the past as trust officer of other institution(s) shall also be considered: Provided. transfer or otherwise change or dispose of the assets comprising the funds.Page 7 . or may be in the form of the following: Provided.4 . net of all expenses incurred in the management of the fund plus the fee of the trustee/administrator/ agent. That in the case of trust officer. and (2) such other managed peso funds which partake the nature of collective investment of a peso-denominated CTF as may be indicated by the presence of the following features: 1 2 (a) The funds are composed of contributions from two (2) or more investors. effective the reserve week starting 15 July 2005. (ii) NDC Agri-Agra ERAP Bonds.§§ 4405Q.5 08. In addition to the basic security deposit. the funds are being allowed at anytime or as of a fixed date in the future. and (iii) Poverty Eradication and Alleviation Certificates (PEACe) bonds only to the extent of the original gross issue proceeds determined at the time of the auction. finally. (As amended by Circular Nos.thirty (30) calendar day-suspension without pay.12.4405Q. the trust officer shall be automatically held responsible since the ultimate responsibility for ensuring compliance with the regulation rests upon him. For purposes of determining the frequency of the violation.Others a. regardless of maturity. Any defiency in the liquidity reserves shall continue to be in the forms or modes From 6% to 9% regular reserve effective the reserve week starting 7 January 2005 under MAB dated 29 December 2004 and from 9% to 10% regular reserve effective the reserve week starting 15 July 2005 under Circular 491 dated 12 July 2005 From 10 % to 11% under Circular 491 dated 12 July 2005. an institution authorized to engage in trust and other fiduciary business shall maintain reserves on (1) peso-denominated CTF. plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds. The requirement that the securities used shall have a term of not more than one (1) year shall not apply. That if the offense cannot be attributed to any other officer of the QB. and (4) Subsequent offense(s) . the QB's compliance profile for the immediately preceding three (3) years or twelve (12) quarters will be reviewed: Provided. (3) Third offense . That it complies with the guidelines shown in Appendix Q-41. invest. That for purposes of determining appropriate penalty on the trust officer and/or other responsible officer(s). convert. Page 8 Manual of Regulations for Non-Bank Financial Institutions . 1 2 The reserves on TOFA-Others shall be provided by the institution out of said funds. (9) Guardianship. The provisions of Subsec. effective the reserve week starting 15 July 2005. (7) Personal Trust (testementary and living trust). institutions may also maintain a special demand deposit account with local banks exclusively for trust duties. b. (5) Employee Benefit Plans Under Trust. (i) Short-term market-yielding government securities purchased directly from the BSP-TD. plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds.5 . (4) Depository and Reorganization.12. regardless of maturity.§§ 4405Q. 4246Q.1 shall govern the composition of reserves against peso-denominated CTFs and such other managed peso funds as well as TOFA-Others of institutions authorized to engage in trust and other fiduciary business. Q Regulations Part IV . That it complies with the guidelines shown in Appendix Q-41. (10) Life Insurance Trust. as well as the required reserves against TOFA-Others (less the percentage allowed to be maintained in the form of short-term market-yielding government securities).4405Q. (ii) NDC Agri-Agra ERAP Bonds. Any deficiency in the liquidity reserves shall continue to be in the forms or modes prescribed under existing regulations for the composition of required reserves. a special deposit account shall be maintained by the institutions with the BSP exclusively for trust reserves which deposits up to forty percent (40%) of the required reserves against peso-denominated CTFs and such other managed peso funds (less the percentage allowed to be maintained in the form of short-term market-yielding government securities).6 06. Effective 1 July 2003. b. 551 dated 17 November 2006 and 539 dated 09 August 2006) § 4405Q. or may be in the form of the following: Provided. and (iii) PEACe bonds only to the extent of the original gross issue proceeds determined at the time of the auction. an institution authorized to engage in trust and other fiduciary business shall maintain reserves on TOFA-Others.6 Composition of reserves a. (3) Custodianship and Safekeeping.31 prescribed under existing regulations for the composition of required reserves. Likewise. The reserves to be maintained shall be as follows: (i) Regular reserves 6%1 (ii) Liquidity reserves 11%2 The liquidity reserves shall be maintained in the RDA with the BSP. and (11) Pre-need Plans (institutional/individual). For purposes of this Subsection. (As amended by Circular Nos. based on the average daily balance of said deposits to be credited quarterly. except accounts held under (1) Administratorship. The reserves on peso-denominated CTFs and such other managed peso funds shall be provided out of said funds. Reserves against TOFA-Others. The portion of reserves that may be maintained in the form of short-term market-yielding government securities refers to government securities shall be purchased directly from the BSP Treasury Department at one-half percent (1/2%) below the prevailing market rate for an equivalent term and volume and subject to BSP’s firm commitment to buy back at From 6% to 9% regular reserve effective the reserve week starting 7 January 2005 under MAB dated 29 December 2004 and from 9% to 10% regular reserve effective the reserve week starting 15 July 2005 under Circular 491 dated 12 July 2005 From 10 % to 11% under Circular 491 dated 12 July 2005. (2) Bond Issues/Other Obligations Under Deed of Trust or Mortgage. (8) Executorship. published interest rates that will be applied on BSP’s Special Deposit Accounts of QBs shall be inclusive of the ten percent (10%) VAT. (6) Escrow. shall be paid interest at four percent (4%) per annum. In addition to the basic security deposit. of institutions authorized to engage in trust and other fiduciary business. as well as TOFAOthers less booked “Allowance for Probable Losses”.1 Organization. as well as on TOFA-Others. The provisions of Subsec. Transactions covering said securities shall be recorded in accordance with the guidelines in Appendix Q-21. based on the seven-day week. 4404Q. (As amended by Circular No. 535 dated 04 July 2006) § 4405Q. § 4405Q. as well as TOFA-Others.7 Computation of reserve position. 4406Q Organization and Management § 4406Q. including the sanctions provided in said Subsection.6 . shall apply thereon. 4246Q. the principal office in the Philippines and all branches and agencies located therein shall be treated as a single unit.8 Reserve deficiencies.4406Q. as well as on TOFA-Others. starting Friday and ending Thursday including Saturdays. provisions on the organization plan or structure of the department. § 4405Q.1. An institution authorized to engage in trust and other fiduciary business shall calculate daily the required and available reserves on the value per books of its peso-denominated CTFs and such other managed peso funds. All purchases of said government securities shall be under the RoSS system of the BTr. to be submitted not later than the close of the third business day following the reference week. For the purpose of computing reserve position. the reserve position at the close of business day immediately preceding such holidays. other managed peso funds. as well as TOFA-Others of the prior week. Sundays. the term value per books shall refer to the total volume of CTFs.31 any time at prevailing market rates. Sec. include in its by-laws.3 shall govern the computation of reserve deficiencies for peso-denominated CTFs and such other managed peso funds. The required reserves in the current period (reference reserve week) shall be computed based on the corresponding levels of peso-denominated CTFs and such other managed peso funds. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . non-business days and days where there is no clearing. An institution authorized to engage in trust and other fiduciary business shall. as well as for TOFA-Others. office or unit which shall conduct such business. non-business days and days when there is no clearing: Provided. For purposes of computing the required and available statutory and liquidity reserves for peso-denominated CTFs and such other managed peso funds.9 Report of compliance Every institution shall make a weekly report to the BSP of its daily required and available reserves on peso-denominated CTFs and such other managed peso funds.12. That with reference to holidays. Such reserves in the form of short-term marketyielding government securities shall be in addition to other forms of eligible reserves such as cash in vault or on deposit with the BSP. sanctions. holidays.1 06. non-business days and days where there is no clearing. The by-laws shall also include provisions on the creation of a trust committee. pursuant to Subsec. the appointment of a trust officer and other subordinate officers and a clear definition of their duties and responsibilities as well as their line and staff functional relationships within the organization which shall be in accordance with the following guidelines.§§ 4405Q.Page 8a . administratively and functionally separate and distinct from the other departments and/or businesses of the institution. An institution which is also engaged in investment management activities shall conduct the same only through its trust (Next Page is Part IV .12. Trust and other fiduciary business of an institution shall be carried out through a trust department which shall be organizationally.1 05.Page 8b Manual of Regulations for Non-Bank Financial Institutions . operationally.§ 4406Q.31 a.Page 9) Q Regulations Part IV . §§ 4406Q. or are generally known to be officers of the institution (or any of its branches and offices other than the Head Office) either through announcement. or those whose duties as such are defined in the by-laws. the trust officer and directors who are appointed by the board of directors on a regular rotation basis and who are not officers of the institution proper. integrity and honesty. general manager. authority and management of the trust department or through any department or office which is involved in the other businesses of the institution. publication or any kind of communication made by the institution. officers and employees of the trust department shall reflect adherence to the minimum internal control standards prescribed by the BSP. That in the case of a trust committee composed of more than five (5) members. § 4406Q. No director. corporate secretary.1 .Page 9 . any such business shall be considered part of the institution's real liabilities. However. be only directly responsible to the institution's board of directors. The trust committee shall be composed of at least five (5) members including the president.31 department and the responsibilities of the board of directors.4406Q. the term officer shall include the president. whenever applicable. c.3 05. (3) collateral appraisal. No institution shall undertake any of the trust and other fiduciary business and.3 Qualifications of committee members. b. Funds Management or any similar department. investment management activities outside the direct control. in addition to meeting the qualification standards Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . The trust department.12. Directors. for or on behalf of the officer. if the institution has any. d. § 4406Q. officers and staff.The institution's trust department shall be staffed by persons of competence. Provisions shall be made by the institution to have legal assistance readily available in the review of proposed and/or existing trust and fiduciary agreements and documents and in the handling of legal and tax matters related thereto. janitorial and security services. trust committee and trust officer shall be construed to include the proper administration and management of investment management activities. executive vice president. representation. For purposes of this Subsection. (2) credit investigation. The institution proper and the trust department may share the following activities: (1) electronic data processing.2 Composition of trust committee. sign predrawn trust instruments such as CTFs. The organization structure and definition of duties and responsibilities of the trust committee. otherwise. shall be concurrently designated as a member of the trust committee: Provided. officer or employee taking part in the management of trust and other fiduciary accounts shall perform duties in other departments or the audit committee of the institution and vice versa. treasurer and others mentioned as officers of the institution. the appointment therein of an operating officer may be allowed only if the required balance in the membership of at least three (3) members of the board for every operating officer shall be maintained. The board of directors shall duly note in the minutes the committee members and designate the chairman who shall be one of the directors referred to above. such as the Treasury. branch managers duly authorized by the board of directors may. in turn. trust officer and other subordinate officers of the trust department shall only be directly responsible to the institution's trust committee which shall. committee members and officers charged with the administration of trust and other fiduciary activities shall. and (4) messengerial. No member of the audit committee. 4406Q. b. by action duly entered in the minutes. (2) The initial review of assets placed under the trustee's or fiduciary's custody. Manual of Regulations for Non-Bank Financial Institutions . (6) It shall designate the members of the trust committee. reinvestment and disposition of funds or property held in its capacity as trustee or fiduciary. termination or closure of all trust and other fiduciary accounts and shall record such in its minutes. or closure of trust and other fiduciary accounts. subject to certain guidelines approved by the board. The board of directors is responsible for the proper administration and management of trust and other fiduciary business. internal and/or external auditors on the institution's trust and other fiduciary business and recording such actions thereon in the minutes.12. such as.3 . Funds and properties held in trust or in any fiduciary capacity shall be administered with the skill. Q Regulations Part IV . the trust officer and subordinate officers of the trust department and shall be responsible for requiring reports from said committee and officers and recording its actions thereon in the minutes. acting in like capacity and familiar with such matters. The trust committee duly constituted and authorized by the board of directors shall act within the sphere of authority which may be provided in the by-laws and/or as may be delegated by the board. It shall likewise be responsible for providing the officers and staff of the institution with appropriate training programs in the administration and operation of all phases of trust and other fiduciary business. would exercise in the conduct of an enterprise of like character and with similar aims.Page 10 Likewise. possess the necessary technical expertise in such business: Provided. but need not be limited to the following: (1) It shall determine and formulate general policies and guidelines on the: (a) acceptance. (2) It shall direct and review the actions of the trust committee and all officers and employees designated to manage the trust and other fiduciary accounts. (5) It shall be responsible for taking appropriate action on the examination reports of supervisory agencies. care. it shall immediately review all non-cash assets received for management.§§ 4406Q. but not limited to. and (7) It shall establish an appropriate staffing pattern and adopt operating budgets that shall enable the trust department to effectively carry out its functions. § 4406Q. closure or management of trust and other fiduciary accounts to the trust committee or to the trust officer. The board of directors may. especially accounts without specific agreements on investments or discretionary accounts. it shall make a review of the trust and/or fiduciary assets at least once every twelve (12) months to determine the advisability of retaining or disposing of such assets.4 05. delegate its authority for the acceptance.31 prescribed for directors and officers of financial institutions. That trust officers who shall be appointed shall have at least two (2) years of actual experience or training in trust operations. the following: (1) The acceptance and closing of trust and other fiduciary accounts. Board of Directors. Trust Committee. termination. and (c) investment. (b) proper administration and management of each trust and other fiduciary accounts. (4) Upon the acceptance of an account. The responsibilities of the board of directors shall include. prudence and diligence necessary under the circumstances then prevailing that a prudent man.4 Responsibilities of administration a. termination. (3) It shall approve or confirm the acceptance. reinvestment and disposition of funds or property. losses and other charges.9 Outsourcing services in trust departments. other fiduciary and investment management relationship is the absolute non-existence of a debtor-creditor relationship. the trust committee shall meet whenever necessary and keep minutes of its actions and make periodic reports thereon to the board. When the agreement or contract is itself used as a certificate of indebtedness in exchange for money placement from clients and/or as the medium for confirming placements and investment thereof.4407Q 07. records and files for each trust or other fiduciary account. (3) The submission of reports on matters which require the attention of the trust committee and the board of directors.Page 11 .31 (3) The investment. Non-Fiduciary and/or Non-Investment Management Activities. The trust officer designated by the board of directors as head of the Trust Department shall act and represent the institution in all trust and other fiduciary matters within the sphere of his authority as may be provided in the by-laws or as may be delegated by the board. and (5) The review of trust and other fiduciary accounts at least once every twelve (12) months to determine the advisability of retaining or disposing of the trust or fiduciary assets. When there is a preponderance of purpose or of intent that the arrangement creates or establishes a relationship other than a trust. c. Any agreement/ arrangement that does not conform to these shall not be considered as trust. His responsibilities shall include. fiduciary or investment manager to guarantee returns on the funds or properties regardless of the results of the investment. (M-2007-009 dated 22 March 2007) Sec. Trust Officer. § 4406Q. b.5 – 4406Q. Trust departments of QBs performing trust and other fiduciary business and investment management activities are covered by the requirement of prior BSP approval for outsourcing services under Appendix Q-37. and (5) The maintenance of necessary controls and measures to protect assets under his custody and held in trust or other fiduciary capacity. thus. (4) The review and approval of transactions between trust and/or fiduciary accounts. fiduciary and/or investment management. The following shall not constitute a trust.§§ 4406Q.8 (Reserved) § 4406Q. there is no obligation on the part of the trustee. (4) The maintenance of adequate books. other fiduciary or investment management relationship. other fiduciary and/or investment management relationship: a. When the agreement or contract of an account is accepted under the signature(s) of those other than the trust officer or subordinate officer of the trust department or those authorized by the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . c. and/or whether the account is being managed in accordance with the instrument creating the trust or other fiduciary relationship.12. fiduciary or investment manager is entitled to fees/commissions which shall be stipulated and fixed in the contract or indenture and the trustor or principal is entitled to all the funds or properties and earnings less fees/commissions. The basic characteristic of trust. the following: (1) The administration of trust and other fiduciary accounts. For this purpose. The trustee. (2) The implementation of policies and instructions of the board of directors and the trust committee. 4407Q Non-Trust.4 . but need not be limited to. §§ 4407Q . or to the public in general. letters of undertaking. other fiduciary and investment management activities involving any of the Q Regulations Part IV . when such loss is not due to the failure of the trustee or fiduciary to exercise the skill. income or return in favor of its client or beneficiary: Provided.31 board of directors to represent the trust officer. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution’s depositors.Page 12 foregoing which are accepted. shall neither be considered as arrangements with a fixed rate nor a guaranty of interest. liquidity or solvency of the institution. and (4) Entering into any arrangement. Where the risk or responsibility is exclusively with the trustee. without prejudice to the imposition of the applicable sanctions provided for in Sections 36 and 37 of R. scheme or practice which results in the payment of fixed rates or yield on trust investments or in the payment of the indicated or expected yield regardless of the actual investment results. No. 129. stockholders. advantage or preference to the QB/trust entity or any party in the discharge Manual of Regulations for Non-Bank Financial Institutions . or abnormal risk or danger to the safety. fiduciary or investment management funds. all relevant facts must be considered.12. 7653. side agreements. may be deemed as conducting business in an unsafe or unsound manner. 4408Q Unsafe and Unsound Practices. Whether a particular activity may be considered as conducting business in an unsafe or unsound manner. That any of the following practices or practices similar and/or tantamount thereto shall be construed as fixing or guaranteeing the rate of interest. entitle the client to a fixed interest or return on his investments: Provided. investors. therefore. prudence and diligence required by law. management. asset condition. (3) Increasing or reducing fees in order to meet a quoted or expected yield. income or return: (1) Issuance of certificates. creditors. No. In determining whether a particular act or omission. The act or omission has caused any undue injury. stability. including evaluation of capital position. c. or to the BSP. and e. or other similar documents providing for fixed rates or guaranteeing interest. a quotation of income expectation or like terms. Sec. earnings posture and liquidity position. rule or regulation affecting QBs/trust entities. care. b. as amended. Where there is a fixed rate or guaranty of interest. income or return.4408Q 05. further. shall consider any of the following circumstances: a. income or return when the agreement or indenture categorically states in bold letters that the quoted income expectation or like terms is neither assured nor guaranteed by the trustee or fiduciary and it does not. upon report of the head of the SES based on findings in an examination or a complaint. and Sections 12 and 16 of P. however.A. d. That where funds are placed in fixed income-generating investments.D. fiduciary or investment manager in case of loss in the investment of trust. The act or omission has resulted or may result in material loss or damage. An analysis of the impact thereof on the QB’s/trust entity’s operations and financial conditions must be undertaken. which is not otherwise prohibited by any law. the Monetary Board. Trust. (2) Paying trust earnings based on indicated or expected yield regardless of the actual investment results. renewed or extended after 16 October 1990 shall be reported as deposit substitutes and shall be subject to the reserve requirement for deposit substitutes from the time of inception. or has given unwarranted benefits. §§ 4408Q - 4408Q.9 05.12.31 by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or d. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the QB/trust entity, whether or not the director or officer profited or will profit thereby. The list of activities which may be considered unsafe and unsound is shown in Appendix Q-24. In line with the statement of principles governing trust and other fiduciary business under Sec. 4401Q, the trustee, fiduciary or investment manager shall desist from the following unsound practices: a. Entering in an arrangement whereby the client is at the same time the borrower of his own fund placement, or whereby the trustor or principal is a borrower of other trust, fiduciary or investment management funds belonging to the same family or business group of such trustor or principal; b. Granting loans or accommodations to any trust committee member, officer and employee of the trust department except where such loans are obtained by said persons as members of an employee benefit fund of the trustee's own institution; c. Borrowing from, or selling trust, other fiduciary and/or investment management assets to, the trust corporation or IH proper to cover portfolio losses and/ or to guarantee the return of principal or income; d. Granting new loans to any borrower who has a past due and/or classified loan account with the institution itself or its trust department; and e. Requiring clients to sign documents in blank. §§ 4408Q.1 - 4408Q.8 (Reserved) § 4408Q.9 Sanctions. The Monetary Board may, at its discretion and based on the seriousness and materiality of the acts or omissions, impose any or all of the following sanctions provided under Section 37 of R.A. No. 7653 and Section 56 of R.A. No. 8791, whenever a QB/trust entity conducts business in an unsafe and unsound manner: a. Issue an order requiring the QB/ trust entity to cease and desist from conducting business in an unsafe and unsound manner and may further order that immediate action be taken to correct the conditions resulting from such unsafe or unsound practice; b. Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed P30,000 a day on a per transaction basis taking into consideration the attendant circumstances, such as the gravity of the act or omission and the size of the QB/ trust entity, to be imposed on the QB/trust entity, their directors and/or responsible officers; c. Suspension of lending or foreign exchange operations or authority to accept new deposit substitutes and/or new trust accounts or to make new investments; d. Suspension of responsible directors and/or officers; e. Revocation of quasi-banking license and/or trust authority; and/or f. Receivership and liquidation under Section 30 of R.A. No. 7653. All other provisions of Sections 30 and 37 of R.A. No. 7653, whenever appropriate, shall also be applicable on the conduct of business in an unsafe or unsound manner. The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34, 35 and 36 of R.A. No. 7653. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 13 §§ 4409Q - 4409Q.2 07.12.31 Sec. 4409Q Trust and Other Fiduciary Business. The conduct of trust and other fiduciary business shall be subject to the following regulations. § 4409Q.1 Minimum documentary requirements. Each trust or fiduciary account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by an order of the court or other competent authority, the written order of said court or authority. b. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of, and designating the signatories to, the trust or other fiduciary account. c. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or indenture shall include the following minimum provisions: (1) Title or nature of contractual agreement in noticeable print; (2) Legal capacities, in noticeable print, of parties sought to be covered; (3) Purposes and objectives; (4) Funds and/or properties subject of the arrangement; (5) Distribution of the funds and/or properties; (6) Duties and powers of trustee or fiduciary; (7) Liabilities of the trustee or fiduciary; (8) Reports to the client; (9) Termination of contractual arrangement and, in appropriate cases, provision for successor-trustee or fiduciary; Q Regulations Part IV - Page 14 (10) The amount or rate of the compensation of trustee or fiduciary; (11) A statement in noticeable print to the effect that trust and other fiduciary business are not covered by the PDIC and that losses, if any, shall be for the account of the client; and (12) Disclosure requirements for transactions requiring prior authority and/ or specific written investment directive from the client, court of competent jurisdiction or other competent authority. § 4409Q.2 Lending and investment disposition. Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust or other fiduciary relationship. When a trustee or fiduciary is granted discretionary powers in the investment disposition of trust or other fiduciary funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, court of competent jurisdiction or other competent authority, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposit substitutes of the institution or deposits with other banks, or mortgage and chattel mortgage bonds issued by the trustee or fiduciary; d. Loans fully secured by real estate or chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject Manual of Regulations for Non-Bank Financial Institutions §§ 4409Q.2 - 4409Q.3 07.12.31 to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended; and e. Investment in the BSP special deposit account (SDA) facility made in accordance with the guidelines in Appendix Q-46. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into; (2) The borrower's name; (3) Amount involved; and (4) Collateral security(ies), if any. (As amended by M-2007-038 dated 29 November 2007 and M-2007-011 dated 08 May 2007) § 4409Q.3 Transactions requiring prior authority. A trustee or fiduciary shall not undertake any of the following transactions for the account of a client, (Next page is Part IV - Page 15) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 14a §§ 4409Q.3 - 4409Q.6 05.12.31 unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client, beneficiary, other party-in-interest, court of competent jurisdiction or other competent authority: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or to any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders, or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interest of such directors, officers and stockholders; or from any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of, or in securities underwritten by, the trustee or fiduciary or a corporation in which the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; and d. Sell, transfer, assign, or lend money or property from one trust or fiduciary account to another trust or fiduciary account except where the investment is in any of those enumerated in Items a to d of Subsec. 4409Q.2. Directors, officers, stockholders, and their related interest covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI in Part III-E of this Manual. The procedural and reportorial requirements in said regulations shall also apply. The disclosure required under this Subsection shall consist of the following minimum information: (1) The transactions to be entered into; (2) Identities of the parties involved in the transactions and their relationships (shall not apply to Item d of this Subsection); (3) Amount involved; and (4) Collateral security(ies), if any. The above information shall be made known to clients in a separate instrument or in the very instrument creating the trust or fiduciary relationship. § 4409Q.4 Ceilings on loans. Loans funded by trust accounts shall be subject to the single borrower's loan limit and DOSRI ceilings imposed on QBs under Part III - A and - E of this Manual. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the institution and its trust department to the same person, firm or corporation shall be combined. § 4409Q.5 Funds awaiting investment or distribution. Funds held by the trustee or fiduciary awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account. § 4409Q.6 Other applicable regulations on loans and investments. The loans and investments of trust and other fiduciary accounts shall be subject to pertinent laws, rules and regulations for banks and QBs that shall include, but need not be limited to, the following: a. Requirements of Sections 76 and 77 of R.A. No. 337, as amended; Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 15 §§ 4409Q.6 - 4409Q.9 06.12.31 b. Provisions of Section 4(e) of the New Rules on Registration of Short-Term Commercial Papers and Section 7(f) of the New Rules on the Registration of LongTerm Commercial Papers issued by the SEC (Appendices Q-7 and Q-8). c. Criteria for past due accounts; and d. Qualitative appraisal of loans, investments and other assets that may require provisions for probable losses in accordance with the criteria set in Appendix Q-10; and the corresponding allowance for probable losses booked in accordance with the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities. § 4409Q.7 Operating and accounting methodology. Trust and other fiduciary accounts shall be operated and accounted for in accordance with the following: a. The trustee or fiduciary shall administer, hold or manage the fund or property in accordance with the instrument creating the trust or other fiduciary relationship; and b. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting. § 4409Q.8 (Reserved) § 4409Q.9 Living trust accounts The guidelines on living trust accounts are as follows: a. Definition. Living Trust is defined under the Manual of Accounts for Trust, as a personal trust created by agreement. It becomes operational during the lifetime of the trustor as soon as the agreement is accomplished. Under a living trust, the trustor (also known as settlor) conveys property or a sum of money to be managed by the trustee, as the agreement dictates, for the benefit of the Q Regulations Part IV - Page 16 trustor and third person(s) or third person(s) only. However, the trustor/s cannot create a trust with himself/ themselves as the sole beneficiary/(ies). The functions and authorities of the trustee as defined in the agreement shall include: (1) the purpose or intention of the trust; (2) the nature and value of the property or sum of money that comprise the trust; (3) the trustee’s investment powers; (4) the name(s) of the beneficiaries; and (5) the terms and conditions under which the income and/or principal of the trust is to be paid or to be disposed of during the lifetime and ultimately, upon the death of the trustor or upon the occurrence of a specified event(s). A living trust may either be revocable or irrevocable. b. Minimum criteria. In line with such definition, transactions considered as living trust accounts should meet the following minimum criteria: (1) Minimum entry amount and maintaining balance shall at least be P100,000: Provided, That living trust accounts with balances of up to P500,000 shall only be invested in deposits and government securities; (2) Living trust accounts shall be maintained for a minimum period of six (6) months. The termination of the living trust agreement, for any cause, within the minimum holding period shall render the trustor ineligible from opening a new living trust account within a period of one (1) year from termination date; (3) Reversion of any part of the principal to the trustor, except in cases provided under the dispositive portion, shall be allowed only upon termination of the living trust agreement: Provided, That in no case can there be a complete or substantial reversion of the principal Manual of Regulations for Non-Bank Financial Institutions §§ 4409Q.9 - 4409Q.15 06.12.31 pursuant to the dispositive portion within the minimum holding period nor can the principal fall below P100,000; (4) Any living trust account that does not meet the requirement on the minimum entry and minimum maintaining balance or is not invested in qualified outlets shall be considered as other fiduciary accounts subject to applicable reserve and other requirements; (5) Pre-printed living trust agreements may be allowed for expediency: Provided That the sections for the trust purpose and the dispositive provision are left blank and shall only be filled-up upon the client’s signing thereof. The purpose shall categorically state the real intention of the trustor, which may include, but need not be limited to: (a) providing his/her and beneficiary/ (ies) present and/or future financial support; (b) protecting his/her beneficiary/(ies) against his/her inexperience in business matters; (c) preventing him/her from making imprudent expenditures; (d) prevent the beneficiary/(ies) from living beyond their means in case of outright disposition of assets in their favor; (e) protecting the beneficiary/(ies) against unforeseen contingencies such as incompetency, incapacity, physical disability or similar misfortune; and (f) setting aside and segregating particular assets, proceeds or payments for administration and distribution pursuant to a court decree or by agreement. The dispositive provision should clearly and specifically define the terms and conditions under which the principal and/or income shall be distributed in order to accomplish such purpose/(s), by taking into consideration the frequency of redemption; the respective interests of each beneficiary; and to whom the 1 proceeds shall be payable. Redemption of funds shall strictly be in accordance with the said terms and conditions; and (6) A living trust account may be opened jointly under one (1) living trust agreement by related individuals up to the second degree of consanguinity or affinity: Provided, That the requirements under Item “5” above are fully complied with. Unrelated individuals or those beyond the second degree of consanguinity or affinity may likewise open a joint living trust account under one (1) living trust agreement: Provided, That the minimum contribution of each individual is at least P100,000: Provided further, That the trust is for a common purpose and: Provided finally, That the requirements under Item “5” are fully complied with. c. Marketing. Officers and personnel of the institution proper, including branch managers, shall not be allowed to market living trust products and sign pre-printed living trust agreements. However, branch managers/officers may be allowed to refer clients to the Trust Department and give short introduction on the living trust products to prospective clients. d. Transitory Provision. Outstanding living trust accounts that do not meet the foregoing additional requirements shall be given twelve (12) 1 months from 11 April 2006 to comply with the aforestated requirements; otherwise, such accounts shall be considered as Other Fiduciary Accounts subject to applicable reserve requirements. e. Sanctions. Any violation of the provisions of this Subsection shall be subject to the sanctions provided under Section 37 of R.A. No. 7653 (The New Central Bank Act). (Circular Nos. 553 dated 22 December 2006 and 521 dated 21 March 2006) §§ 4409Q.10 - 4409Q.15 (Reserved) Original 6 months transitory period under Cir. No. 521 extended by another 6 months under Cir No. 553. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 17 § 4409Q.16 05.12.31 § 4409Q.16 Qualification and accreditation of quasi-banks acting as trustee on any mortgage or bond issuance by any municipality, government-owned or controlled corporation, or any body politic a. Applicability. QBs duly accredited by the BSP may act as trustee on any mortgage or bond issued by any municipality, GOCC, or any body politic. b. Application for accreditation. A QB desiring to act as trustee on any mortgage or bond issued by any municipality, GOCC, or any body politic shall file an application for accreditation with the appropriate department of the SES. The application shall be signed by the president or officer of equivalent rank of the QB and shall be accompanied by the following documents: (1) certified true copy of the resolution of the institution’s board of directors authorizing the application; (2) a certification signed by the president or officer of equivalent rank that the institution has complied with all the qualification requirements for accreditation. c. Qualification requirements. A QB applying for accreditation to act as trustee on any mortgage or bond issued by any municipality, GOCC, or any body politic must comply with the requirements in Appendix Q-31. d. Independence of the trustee. A QB is prohibited from acting as trustee of a mortgage or bond issuance if any elective or appointive official of the LGU, GOCC, or body politic which issued said mortgage or bond and/or his related interests own such number of shares of the QB that will allow him or his related interests to elect at least one (1) member of the board of directors of such QB or is directly or indirectly the registered or beneficial owner of more than ten percent (10%) of any class of its equity security. Q Regulations Part IV - Page 18 e. Investment and management of the funds. A domestic QB designated as trustee of a mortgage or bond issuance may hold and manage, in accordance with the provisions of the trust indenture or agreement, the proceeds of the mortgage or bond issuance and such assets and funds of the issuing municipality, corporation, or body politic as may be required to be delivered to the trustee under the Trust indenture/agreement, subject to the following conditions/restrictions: (1) Pending the utilization of such funds pursuant to the provisions of the trust indenture/agreement, the same shall only be (i) deposited in a bank authorized to accept deposits from the Government or government entities: Provided, That the depository bank is not a subsidiary or affiliate of the trustee QB, or (ii) invested in peso-denominated treasury bills acquired/purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate. (2) Investments of funds constituting or forming part of the sinking fund created as the primary source for the payment of the principal and interests due the mortgage or bonds shall also be limited to deposits in any bank authorized to accept deposits from the Government or government entities and investments in government securities that are consistent with such purpose which must be acquired/purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate. f. Waiver of confidentiality. A QB designated as trustee of any mortgage or bond issued by any municipality, GOCC, or any body politic shall submit to the appropriate department of the SES a waiver of the confidentiality of information under Sections 2 and 3 of R.A. No. 1405, as amended, duly Manual of Regulations for Non-Bank Financial Institutions §§ 4409Q.16 - 4409Q.17 06.12.31 executed by the issuer of the mortgage or bond in favor of the BSP. g. Reportorial requirements. A QB authorized by the BSP to act as trustee of the proceeds of mortgage or bond issuance of a municipality, GOCC, or body politic shall comply with reportorial requirements that may be prescribed by the BSP. h. Applicability of the rules and regulations on Trust, Other Fiduciary Business and Investment Management Activities. The provisions of the Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities not inconsistent with the provisions of this Subsection shall form part of these rules. i. Sanctions. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37, respectively, of the R.A. No. 7653, violation of any provision of this Subsection shall be subject to the following sanctions/ penalties depending on the gravity of the offense: (1) First offense – (a) Fine of up to P10,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (b) Reprimand for the directors/ officers responsible for the violation. (2) Second offense – (a) Fine of up to P20,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; (b) Suspension for ninety (90) days without pay for directors/officers responsible for the violation; and (c) Revocation of the authority to act as trustees on any mortgage or bond issuance by any municipality, GOCCs, or body politic. (3) Subsequent offense – (a) Fine of up to P30,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; (b) Suspension or revocation of the trust license; (c) Suspension for 120 days without pay of the directors/officers responsible for the violation. § 4409Q.17 Trust fund of pre-need companies. The following rules and regulations shall govern the acceptance, management and administration of the trust funds of pre-need companies by entities authorized to perform trust and other fiduciary functions. a. Administration of trust fund. In line with the policy of providing greater protection to pre-need planholders, prudential measures are hereby laid out in the administration of trust funds of preneed companies. The trust fund, inclusive of earnings, shall be administered and managed by the trustee with the skill, care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting in the same capacity and familiar with such matters, would exercise in the conduct of an enterprise of a like character and similar aims. The trustee shall have exclusive management and control over the trust fund and the right at any time to sell, convert, invest, change, transfer or otherwise dispose of the assets comprising the funds. b. Trustee. No trust entity shall act as a trustee or administer or hold a trust fund established by a pre-need company, which is a subsidiary or affiliate, as defined under existing BSP regulations, of such trust entity. Trust entities currently holding or administering trust funds of an affiliate pre-need company may continue to act as trustee of such funds after the transition period provided under Item “g” only upon Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 18a § 4409Q.17 06.12.31 prior approval of the Monetary Board on the basis of a clear showing that no potential conflict of interest will arise. An absence of any exception or finding on conflicts of interest during an examination of the trust entity shall be deemed as prima facie evidence that no potential conflict of interest will arise. c. Investment of the trust fund. Unless otherwise allowed under existing laws or regulations issued by the agency having jurisdiction and supervision over pre-need companies, or with prior written approval by said agency, loans and investments of the trust funds shall be limited to: (1) Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations wherein the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; (2) Commercial papers duly registered with the SEC with a credit rating of one (1) for short term and “AAA” for long-term or their equivalent; (3) Loans fully guaranteed by the Republic of the Philippines, as to the payment of principal and interest; (4) Loans fully secured by a hold-out on, assignment or pledge of deposits maintained with banks, and/or of deposit substitutes or of mortgage and chattel mortgage bonds issued by the trustee/ fiduciary or by banks; (5) Loans fully secured by real estate in accordance with Section 37 and subject to the requirements of Sections 39 and 40 of R.A. No. 8791 and their implementing regulations; and (6) Loans fully secured by unconditional payment guarantees (such as standby letters of credit and letter of indemnity) issued by banks/multilateral FIs. Q Regulations Part IV - Page 18b d. Transactions with DOSRI. The trustee shall not, for the account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign or lend money or property to, or purchase debt instruments of, any of the departments, directors, officers, stockholders, employees, subsidiaries and affiliates of the trustee and/or the trustor, and relatives within the first degree of consanguinity or affinity, or the related interests, of such directors, officers and stockholders, without prejudice to any rule that may be issued by the agency having jurisdiction and supervision over such preneed company allowing such transaction with the prior written approval of such agency. Such written approval shall clearly specify the amount of the loan and/or investment including the name of the concerned director, officer, stockholder and their related interests. e. Applicability of the Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities (Trust Rules). The provisions of the Trust Rules consistent with the provisions of this Subsection shall supplementarily apply to trust funds of preneed companies. f. Penalties and sanctions. Any violation of the provisions of this Subsection shall be a ground for prohibiting the concerned entity from accepting, managing and administering trust funds of pre-need companies without prejudice to the imposition of the applicable sanctions prescribed or allowed under the Trust Rules. g. Transitory provisions. Institutions performing trust and other fiduciary business which are presently administering and managing trust funds of pre-need companies are hereby given a period of one (1) year from 25 April 2006 to comply with the requirements hereof. (Memorandum to All Banks and NBFIs dated 28 March 2006) Manual of Regulations for Non-Bank Financial Institutions §§ 4410Q - 4410Q.5 05.12.31 Sec. 4410Q Unit Investment Trust Funds/ Common Trust Funds1. The following rules and regulations shall govern the creation, administration and investment/s of Unit Investment Trust (UIT) Funds. The rules and regulations on Common Trust Funds (CTFs) are in Appendix Q-32. § 4410Q.1 Definition a. Unit Investment Trust Funds. Unit Investment Trust Funds are open-ended pooled trust funds denominated in pesos or any acceptable currency, which are operated and administered by a trust entity and made available by participation. The term Unit Investment Trust Fund is synonymous to CTFs. As an open-ended fund, participation or redemption is allowed as often as stated in its plan rules. UIT Funds shall not include long term funds designed for the primary purpose of availing the tax incentives/exemption under Section 24(B)(1) of R.A. No. 8424 (The Tax Reform Act of 1997). b. Trust entity. Any bank, IH or a stock corporation duly authorized by the Monetary Board to engage in trust, investment management and fiduciary business. c. Board of directors. For this purpose, the term shall include a trust entity’s duly constituted board of directors or its functional oversight equivalent which shall include the country head in the case of foreign institutions. § 4410Q.2 Establishment of a Unit Investment Trust Fund. Any trust entity authorized to perform trust functions may establish, administer and maintain one (1) or more UIT Funds subject to applicable provisions under this Section. § 4410Q.3 Administration of a Unit Investment Trust Fund. The trustee shall have exclusive management and control of each UIT Fund under its administration, and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund: Provided, That no participant in a UIT Fund shall have or be deemed to have any ownership or interest in any particular account or investment in the UIT Fund but shall have only its proportionate beneficial interest in the fund as a whole. § 4410Q.4 Relationship of trustee with Unit Investment Trust Fund. A trustee administering a UIT Fund shall not have any other relationship with such fund other than its capacity as trustee of the UIT Fund: Provided, however, That a trustee which simultaneously administers other trust, fiduciary or investment management funds may invest such funds in the trustee’s UIT Fund, if allowed under a policy approved by the board of directors. § 4410Q.5 Operating and accounting methodology. A UIT Fund shall be operated and accounted for in accordance with the following: a. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as pooled-fund accounting method. b. Contributions to each fund by clients shall always be through participation in units of the fund and each unit shall have uniform rights or privileges, as any other unit. c. All such participations shall be pooled and invested as one (1) account (referred to as collective investments). d. The beneficial interest of each participation unit shall be determined under a unitized net asset value per unit (NAVPu) valuation methodology defined in the written plan of the UIT Fund, and no participation shall be admitted to, or (Next page is Part IV - Page 19) 1 The regulations on common trust funds (CTFs) were relocated to Appendix Q-32. UIT Funds regulations took effect on 01 October 2004 (effectivity of Circular 447 dated 03 September 2004). Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 18c §§ 4410Q.5 - 4410Q.6 08.12.31 redeemed from, the fund except on the basis of such valuation. To arrive at a fund’s NAVPu, the fund’s total Net Assets is divided by the total outstanding units. Total Net Assets is a summation of the market value of each investment less fees, taxes, and other qualified expenses, as defined under the plan rules. § 4410Q.6 Plan rules. Each UIT Fund shall be established, administered and maintained in accordance with a written trust agreement drawn by the trustee, referred to as the “Plan” which shall be approved by the board of directors of the trustee and a copy of which shall be submitted to the BSP for processing and approval prior to its implementation. Each new UIT Fund Plan filed for approval shall be charged a processing fee of P10,000.00. The Plan shall contain the following minimum elements: a. Title of the Plan. This shall correspond to the product/brand name by which the UIT Fund is proposed to be known and made available to its clients. The Plan rules shall state the classification of the UIT Fund (e. g., money market fund, bond fund, balanced fund and equity fund). b. Manner by which the fund is to be operated. A statement of the fund’s investment objectives and policies including limitations, if any. c. Risk disclosure. The Plan rules shall state both the general risks and risks specific to the type of fund. d. Investment powers of the trustee with respect to the fund, including the character and kind of investments, which may be purchased, by the fund. There must be an unequivocal statement of the full discretionary powers of the trustee as far as the fund’s investments are concerned. These powers shall be limited only by the duly stated investment objective and policies of the fund. e. The unitized NAVPu valuation methodology as prescribed under Subsec. 4410Q.5.d shall be employed. f. Terms and conditions governing the admission or redemption of units of participation in the fund. The Plan rules shall state that the trustee, prior to admission of a client’s initial participation in the UIT Fund, shall conduct a client suitability assessment to profile the risk-return orientation and suitability of the client to the specific type of fund. If the frequency of admission or redemption is other than daily; that is, any business day, the same should be explicitly stated in the Plan rules: Provided, That the admission and redemption shall be based on the end of day NAVPu of the fund computed after the cut-off time for fund participation and redemption for that reference day, in accordance with existing BSP regulations on mark to market valuation of investment securities. g. Aside from the regular audit requirement applicable to all trust accounts, an external audit of each UIT Fund shall be conducted annually by an independent auditor acceptable to the BSP and the results thereof made available to participants. The external audit shall be conducted by the same external auditor engaged for the audit of the trust entity. h. Basis upon which the fund may be terminated. The Plan rules shall state the rights of participants in case of termination of the fund. Termination of the fund shall be duly approved by the trustee’s board of directors and a copy of the resolution submitted to the appropriate department of the BSP. i. Liability clause of the trustee. There must be a clear and prominent statement adjacent to where a client is required to sign the participating trust agreement that (1) the UIT Fund is a trust product and not a deposit account or an obligation of, or guaranteed, or insured by the trust entity or its affiliates or subsidiaries; (2) the UIT Fund Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 19 §§ 4410Q.6 - 4410Q.7 08.12.31 is not insured or governed by the PDIC; (3) due to the nature of the investment, yields and potential yields cannot be guaranteed; (4) any loss/income arising from market fluctuations and price volatility of the securities held by the UIT Fund, even if invested in government securities, is for the account of the client/participant; (5) as such, the units of participation of the investor in the UIT Fund, when redeemed, may be worth more or be worth less than his/her initial investment/contributions; (6) historical performance, when presented, is purely for reference purposes and is not a guarantee of similar future result; and (7) the trustee is not liable for losses unless upon willful default, bad faith or gross negligence. j. Amount of fees/commission and other charges to be deducted from the fund. The amount of fees that shall be charged to a fund shall cover the fund’s fair and equitable share of the routine administrative expenses of the trustee such as salaries and wages, stationery and supplies, credit investigation, collateral appraisal, security, messengerial and janitorial services, EDP expenses, BSP supervision fees and internal audit fees. However, the trustee may charge a UIT Fund for special expenses in case such expenses are (1) necessary to preserve or enhance the value of the fund, (2) payable to a third party covered by a separate contract, and (3) disclosed to participants. The trustee shall secure prior BSP approval for outsourcing services provided under existing regulations. No other fees shall be charged to the fund. Marketing or other promotional related expenses shall be for the account of the trustee and shall be presumed covered by the trust fee. k. Such other matters as may be necessary or proper to define clearly the rights of participants in the UIT Fund. The provisions of the Plan shall govern participation in the fund including the Q Regulations Part IV - Page 20 rights and benefits of persons having interest in such participation, as beneficiaries or otherwise. The Plan may be amended by a resolution of the board of directors of the trustee: Provided, however, That participants in the fund shall be immediately notified of such amendments and shall be allowed to withdraw their participations within a reasonable time but in no case less than thirty (30) calendar days after the amendments are approved, if they are not in conformity with the amendments made thereto: Provided further, That amendments to the Plan shall be submitted to the BSP within ten (10) business days from approval of the amendments by the board of directors. For purposes of imposing monetary penalties provided under Subsec. 4162Q.3 for delayed submission of reports, the amendments to the Plan shall be considered as “Category A-3” report. The amendments shall be deemed approved after thirty (30) business days from date of completion of requirements. A copy of the Plan shall be available at the principal office of the trustee during regular office hours, for inspection by any person having an interest in the fund or by his authorized representative. Upon request, a copy of the Plan shall be furnished such interested person. (As amended by Circular No. 593 dated 08 January 2008) § 4410Q.7 Minimum disclosure requirements a. Disclosure of UIT Fund investments. A list of prospective and outstanding investment outlets shall be made available by the trustee for the review of all UIT Fund clients. Such disclosure shall be substantially in the form as shown in Appendix Q-34. The list of investment outlets shall be updated quarterly. b. Distribution of investment units The trustee may issue such conditions or rules, as may affect the distribution of Manual of Regulations for Non-Bank Financial Institutions § 4410Q.7 08.12.31 investment units subject to the minimum conditions enumerated hereunder. (1) Marketing materials. All printed marketing materials related to the sale of a UIT Fund shall clearly state: (a) The designated name and classification of the fund and the fund’s trustee. (b) Minimum information regarding: (i) The general investment policy and applicable risk profile. There shall be a clear description/explanation of the general risks attendant with investing in a UIT Fund, including risk specific to a type of fund. Technical terms should likewise be defined in laymen’s terms1. (ii) Particulars or administrative and marketing details like pricing and cut-off time. (iii) All charges made/to be made against the fund, including trust fees, other related charges. (iv) The availability of the Plan rules governing the fund, upon the client’s request. (v) Client and Product Suitability Standards. Prior to admission, the trustee shall perform a client profiling process for all UIT Fund participants under the general principles on client suitability assessment to guide the client in choosing investment outlets that are best suited to his objectives, risk tolerance, preferences and experience. The profiling process shall, at the minimum, require the trustee to obtain client information through the Client Suitability Assessment (CSA) form, classify the client according to his financial sophistication and communicate the CSA results to the subject client. The general principles on CSA shall also require the trustee to adopt a notice mechanism whereby clients are advised and/or reminded of the explicit requirement to notify the trustee or its UIT Fund marketing personnel of any change in their characteristics, preferences or circumstances to enable the trustee to update client’s profile at least every three (3) years. (c) The participation is not a “deposit account” but a trust product; and that any loss/income is for the account of the participant; that the trustee is not liable for losses unless upon willful default, bad faith or gross negligence. (d) A balanced assessment of the possible gains and losses of the UIT Fund and that the participation does not carry any guaranteed rate of return, and is not insured by the PDIC. (e) An advisory that the investor must read the complete details of the fund in the Plan Rules, make his/her own risk assessment, and when necessary, he/she must seek independent/professional opinion, before making an investment. (2) Evidence of participation. Every UIT Fund participant shall be given (a) A participating trust agreement. Such agreement shall clearly indicate that (1) the UIT Fund is a trust product and not a deposit account or an obligation of, or guaranteed, or insured by the trust entity or its affiliates or subsidiaries; (2) the UIT Fund is not insured or governed by the PDIC; (3) due to the nature of the investment, yields and potential yields cannot be guaranteed; (4) any loss/income arising from market fluctuations and price volatility of the securities held by the UIT Fund, even if invested in government securities, is for the account of the client/ participant; (5) as such, the units of participation of the investor in the UIT Fund, when redeemed, may be worth more or be worth less than his/her initial investment/contributions; (6) historical Example: “Fixed income securities” does not really mean a guarantee of fixed earnings on the investor's participation; “Risk-free” government securities which may be sovereign “risk-free” but not interest rate “risk-free”. 1 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 21 §§ 4410Q.7 - 4410Q.8 08.12.31 performance, when presented, is purely for reference purposes and is not a guarantee of similar future result; and (7) the trustee is not liable for losses unless upon willful default, bad faith or gross negligence. In addition to the agreement, every UIT Fund participant shall be provided with – (1) CSA form to be accomplished during the profiling process required under the general principles on CSA. This is designed to ensure that based on relevant information about the client, his investment profile is matched against the investment parameters of the UIT Fund. At the minimum, client information shall include personal or institutional data, investment objective, investment horizon, investment experience, and risk tolerance; and (2) Risk disclosure statement, which in reference to Subsec. 4410Q.6c, shall describe the attendant general and specific risks that may arise from investing in the UIT Fund. Such statement shall be substantially similar to the form in Annex A of Appendix Q-34. Both documents shall be signed by the client/participant and the UIT marketing personnel who assessed and explained to the concerned client his/her ability to bear the risks and potential losses. (b) A confirmation of participation and redemption made to/from the fund that shall contain the following information: (i) NAVPu of the fund on day of purchase /redemption; (ii) Number of units purchased/ redeemed; and (iii) Absolute peso or foreign currency value. No indicative rates of return shall be provided in the trust participating agreement. Marketing materials may present relevant historical performance purely for reference and with clear indication that past results do not guarantee similar future results. Q Regulations Part IV - Page 22 (3) A participating trust agreement or confirmation of contribution/redemption need not be manually signed by the trustee or his authorized representative if the same is in the form of an electronic document that conforms with the implementing rules and regulations of R.A. No. 8792, otherwise known as the E-Commerce Act. c. Regular publication/computation/ availability of the fund’s NAVPu. Trust entities managing a UIT Fund shall cause at least the weekly publication of the NAVPu of such fund in one (1) or more newspaper of national circulation: Provided, That a pooled weekly publication of such NAVPu shall be considered as substantial compliance with this requirement. The said publication, at the minimum, shall clearly state the name of the fund, its general classification, the fund’s NAVPu and the moving return on investment (ROI) of the fund on a year-to-date (YTD) and year-on-year (YOY) basis. NAVPu shall be computed daily and shall be made available to participants and prospective participants upon request. d. Marketing personnel. To ensure the competence and integrity of all duly designated UIT marketing personnel, all personnel involved in the sales of these funds shall be required to undergo standardized training program in accordance with the guidelines of this Subsection. This training program may be conducted by their respective trust entities in accordance with the minimum training program guidelines provided by the Trust Officers Association of the Philippines (TOAP). Such training program shall however be regularly validated by TOAP. (As amended by Circular No. 593 dated 08 January 2008) § 4410Q.8 Exposure limit to single person/entity. The combined exposure of the UIT Fund to any entity and its related parties shall not exceed fifteen percent Manual of Regulations for Non-Bank Financial Institutions §§ 4410Q.8 - 4410Q.11 07.12.31 (15%) of the market value of the UIT Fund: Provided, That, a UIT Fund invested, partially or substantially, in exchange traded equity securities shall be subject to the fifteen percent (15%) exposure limit to a single entity/issuer: Provided, further, That, in the case of an exchange traded equity security which is included in an index and tracked by the UIT Fund, the exposure of the UIT Fund to a single entity shall be the actual benchmark weighting of the issuer or fifteen percent (15%), whichever is higher. This limitation shall not apply to non-risk assets as defined by the BSP. In case the limit is breached due to the marking-to-market of certain investment/s or any extraordinary circumstances, e.g., abnormal redemptions which are beyond the control of the trustee, the trustee shall be given thirty (30) days from the time the limit is breached to correct the same. (As amended by Circular No. 577 dated 17 August 2007) § 4410Q.9 Allowable investments and valuation. UIT Fund investments shall be limited to bank deposits and the following financial instruments: (a) Securities issued by or guaranteed by the Philippine government, or the BSP; (b) Tradable securities issued by the government of a foreign country, any political subdivision of a foreign country or any supranational entity; (c) Exchange-listed securities, (d) Marketable instruments that are traded in an organized exchange; (e) Loans traded in an organized market; and (f) such other tradable investments outlets/categories as the BSP may allow: Provided, That a financial instrument is regarded as tradable if quoted two-way prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The UIT Fund may avail itself of financial derivatives instruments solely for the purpose of hedging risk exposures of the existing investments of the Fund, provided these are accounted for in accordance with existing BSP hedging guidelines as well as the trust entity’s risk management and hedging policies duly approved by the Trust Committee and disclosed to participants. The use of hedging instruments shall also be disclosed in the “Plan” as provided in Item “c” of Subsec. 4410Q.6 and specified in the quarterly “list of investment outlets” as provided in Item “a” of Subsec. 4410Q.7. § 4410Q.10 Other related guidelines on valuation of allowable investments a. In pricing debt securities, interpolated yields shall be used for securities with odd or off-the-run tenors using the straight-line basis and generally accepted market convention. b. In case outstanding UIT Fund investments may deteriorate in quality, i.e., no longer tradable as defined under Subsec. 4410Q.9, the trustee shall immediately provision to reflect fair value in accordance with generally accepted accounting principles or as may be prescribed by the BSP. If no fair value is available, the instrument shall be assumed to be of no market value. § 4410Q.11 Unit Investment Trust Fund administration support a. Backroom operations. Administrative rules on backroom under Sec. 4421Q shall be applicable to UIT Fund. Adequate systems to support the daily marking-to-market of the fund’s financial instruments shall be in place at all times. In this respect, a daily reconcilement of the fund’s resultant marked-to-market value with the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 22a §§ 4410Q.11 - 4410Q.14 05.12.31 unrealized market losses and gains (respective contra asset balance) versus the book value of the fund for investments in financial instruments shall be done and all differences resolved within the day. b. Custody of securities. Investments in securities of a UIT Fund shall be held for safekeeping by BSP accredited third party custodians which shall perform independent marking-to-market of such securities. § 4410Q.12 Counterparties a. Dealings with related interests/QB proper/holding company/subsidiaries/ affiliates and related companies. A trustee of a UIT Fund shall be transparent at all times and maintain an audit trail for all transactions with related parties or entities. The trustee shall observe the principle of best execution and no purchase/sale shall be made with related counterparties without considering at least two (2) competitive quotes from other sources. b. Accreditation of counterparties The Fund shall only invest with approved counterparties qualified in accordance with the policy duly approved by the Trust Committee. Counterparties shall be subject to appropriate limits in accordance with sound risk management principles. § 4410Q.13 Foreign currencydenominated Unit Investment Trust Funds UIT Fund denominated in any acceptable foreign currency provided under existing BSP rules and regulations may be established. Such fund may only be invested in allowable investments denominated in pesos or any acceptable foreign currency as expressly allowed under the fund’s Plan rules and properly disclosed to fund participants. § 4410Q.14 Exemptions from statutory and liquidity reserves, single borrowers limit, DOSRI. The provisions on reserves, single borrower’s limit and DOSRI ceilings under Secs. 4360Q and 4361Q, respectively, applicable to trust funds in general shall not be made applicable to UIT Funds. (Next page is Part IV - Page 23) Q Regulations Part IV - Page 22b Manual of Regulations for Non-Bank Financial Institutions §§ 4411Q - 4411Q.3 05.12.31 Sec. 4411Q Investment Management Activities. The conduct of investment management activities shall be subject to the following regulations. § 4411Q.1 Minimum documentary requirements. An investment management account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of, and designating the signatories, to the investment management account. b. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or contract shall include the following minimum provisions: (1) Prenumbered contractual agreement form; (2) Title or nature of contractual agreement in noticeable print; (3) Legal capacities, in noticeable print, of parties sought to be covered; (4) Purposes and objectives; (5) The initial amount of funds and/or value of securities subject of the arrangement delivered to the investment manager; (6) Statement in underlined noticeable print that: (a) The agreement is an agency and not a trust agreement. As such, the client shall at all times retain legal title to funds and properties subject of the arrangement; (b) The arrangement does not guaranty a yield, return or income by the investment manager. As such, past performance of the account is not a guaranty of future performance and the income of investments can fall as well as rise depending on prevailing market conditions; and (c) The investment management agreement is not covered by the PDIC and that losses, if any, shall be for the account of the client; (7) Duties and powers of the investment manager; (8) Liabilities of the investment manager; (9) Reports to the client; (10) The amount or rate of the compensation of the investment manager; (11) Terms and conditions governing withdrawals from the account; (12) Termination of contractual arrangement; and (13) Disclosure requirements for transactions requiring prior authority and/ or specific written investment directives from the client. A sample investment management agreement which conforms to the foregoing requirements is shown as Appendix Q-14. § 4411Q.2 Minimum size of each investment management account. No investment management account shall be accepted or maintained for an amount less than P1.0 million. An investment management account reduced to less than P1.0 million due to investment losses shall be exempt from this requirement. § 4411Q.3 Commingling of funds Two (2) or more individual investment management accounts shall not be commingled except for the purpose of investing in government securities or in duly registered commercial papers: Provided, That the participation of each of the aforementioned accounts in the commingled account shall not be less than P1 million: Provided, further, That such commingling has been fully disclosed and specifically agreed in writing by the clients. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV - Page 23 4411Q. or mortgage and chattel mortgage bonds issued by the investment manager. 76 and 77 of R. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into. stockholders and their related interest covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI under Part III .§§ 4411Q.Page 24 unless prior to its execution.4 Lending and investment disposition. transfer. as amended. or to any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity. b. stockholders. When an investment manager is granted discretionary powers in the investment disposition of investment management funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client. as amended. or the related interests of such directors. No. and (4) Collateral security(ies). or employees of the investment manager. officers. Sell.E of this Manual. An investment manager shall not undertake any of the following transactions for the account of a client. Assets received in investment management capacity shall be administered in accordance with the terms of the instrument creating the investment management relationship. c. transfer or assign money or property to any of the departments. loans and investments of the fund shall be limited to: a. and d. (3) Amount involved. Manual of Regulations for Non-Bank Financial Institutions . officers. nor in a representative capacity. Lend. and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities.5 05. § 4411Q.5 Transactions requiring prior authority. Directors. directors.4411Q. or employees of the investment manager. assignment or pledge of deposit substitutes maintained with the institution or deposits with banks. or relatives within the first degree of consanguinity or affinity. or from any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity. or the related interests of such directors. stockholders. fiduciary or investment management account except where the investment is in any of those enumerated in Items a to d of Subsec.31 § 4411Q. 337. 337. directors. sell.A. such transaction has been fully disclosed and specifically authorized in writing by the client: a.12. No. Invest in equities of or in securities underwritten by the investment manager or a corporation in which the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee. or relatives within the first degree of consanguinity or affinity. assign or lend money or property from one trust fiduciary or investment management account to another trust. and d. (2) Borrower's name. officers and stockholders. Loans fully secured by a hold-out on. Purchase or acquire property or debt instruments from any of the departments. b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest. and subject to the requirements of Sections 75. officers and stockholders. Evidences of indebtedness of the Republic of the Philippines and of the BSP. if any.4 .4. officers. Loans fully secured by real estate or chattels in accordance with Section 78 of R. c.A. Q Regulations Part IV . investment adviser or portfolio manager under Section 7 of P.6 Title to securities and other properties. 4413Q Required Retained Earnings Appropriation. B. That in case of the latter. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting. and 1 b. (2) Identities of the parties involved in the transaction and their relationships (shall not apply to Item "d" of this Subsec.5 . 4414Q Authority to Perform Investment Management. § 4411Q. this shall not be construed as authority to engage in trust and other fiduciary business.31 The procedural and reportorial requirements in said regulations shall also apply. If an entity is found to be engaged in unauthorized investment management activities. The above information shall be made known to clients in a separate instrument or in the very instrument creating the investment management relationship.).7 Ceilings on loans. Entities whose articles of incorporation 1 or any amendments thereto. before the declaration of dividends. whether as its primary. and (4) Collateral security(ies). 129.D. For purposes of determining compliance with said ceilings. 4412Q (Reserved) Sec.§§ 4411Q. investment adviser or portfolio manager shall secure the prior favorable recommendation of the Monetary Board before the filing of said articles of incorporation or amendments thereto with the SEC.E of this Manual. § 4411Q.8 Operating and accounting methodology. investment management and other fiduciary business since the last preceding dividend declaration until the retained earnings shall amount to twenty percent (20%) of its authorized capital stock and no part of such retained earnings shall at any time be paid out in dividends but losses accruing in the course of its business may be charged against surplus. hold or manage the fund or property in accordance with the instrument creating the investment management relationship. However. 5 dated 17 July 2008. include the purpose or power to act as financial consultant.12. (3) Amount involved. INVESTMENT MANAGEMENT ACTIVITIES Sec. The disclosure required under this Subsec. if any. firm or corporation shall be combined. 3 dated 16 February 2006 and 14 dated 24 October 2000. An IH may act as financial consultant. the instrument shall indicate that the investment manager is acting in a representative capacity and that the principal's name is disclosed thereat. as amended. The investment manager shall administer. Loans funded by investment management accounts shall be subject to the DOSRI ceilings imposed on QBs in Part III .4414Q 08. the total amount of said loans granted by the institution and its trust department to the same person. shall consist of the following minimum information: (1) The transactions to be entered into. Sec. Investment management accounts shall be operated and accounted for in accordance with the following: a. secondary or incidental business. Securities such as promissory notes. shares of stocks. bonds and other properties of the portfolio shall be issued or registered in the name of the principal or of the investment manager: Provided. § 4411Q. the Monetary Board may impose administrative sanctions SEC Memorandum Circular Nos. No. An institution authorized to engage in trust and other fiduciary business shall. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV .Page 25 . carry to retained earnings appropriated for trust business at least ten percent (10%) of its net profits realized out of its trust. among other things: (1) The organization plan or structure of the department. (As amended by CL-2008-078 dated 15 December 2008.1 Prerequisites for engaging in investment management activities.12. The by-laws of the institution shall include. policies and instructions of the BSP and has not been cited for serious/ major violations or exceptions affecting its solvency. cash in vault. and ceilings on DOSRI loans for the last sixty (60) days immediately preceding the date of application. rules and regulations.1 08. liquidity floor. b. An entity before it may engage in investment management activities shall comply with the following requirements: a.4414Q.§§ 4414Q . c. The Monetary Board may take such action as it may deem proper such as. An entity not authorized to engage in investment management activities shall not advertise or represent itself as being engaged in investment management activities or represent itself as investment manager or use words of similar import. d. Where the applicant is authorized to engage in quasi-banking functions. The articles of incorporation or charter of the institution shall include among its powers or purposes the authority to engage in investment management activities. of the various units. the applicant shall also meet the following additional requirements: (1) It has continuously complied with the capital-to-risk assets ratio. shall be maintained up to the Manual of Regulations for Non-Bank Financial Institutions . and (ii) Primary and secondary reserve to Bills Payable: where primary reserves consist of cash on hand. as well as the line and staff functional relationships. subject to the implementing guidelines to be issued thereon. as follows: (i) Primary reserves to Bills Payable. CL-2008-053 dated 21 August 2008 and CL-2008-007 dated 21 January 2008) § 4414Q. checks and other cash items.Page 26 (3) A clear definition of the duties and responsibilities. reserve requirements against deposit substitutes.Bills and other government securities.31 against such entity or its principal officers and/or majority stockholders or proceed against them in accordance with law. liquidity and profitability. and (3) It has shown substantial compliance with other pertinent laws. It has been duly licensed by the appropriate government agency or created by special law or charter. requiring the transfer or turnover of any IMA to duly incorporated and licensed entities of the choice of the client. Starting year 2001. but may not be limited to. (2) The creation of an investment management committee. and (b) The substitution of the reserve and liquidity floor requirements with the cash ratio. as well as with other requirements under existing regulations. IHs authorized to engage in investment management activities shall renew their existing licenses yearly. (2) It has not incurred net weekly reserve deficiencies against deposit substitutes during the last eight (8) weeks immediately preceding the date of application. T. and Q Regulations Part IV . office or unit which shall conduct the investment management activities of the institution. due from the BSP and due from banks. officers and staff within the organization. the appointment of an investment management officer and subordinate officers of the investment management department. Compliance with the foregoing. and where secondary reserves consist of BSP-supported government securities. Where the applicant is not authorized to engage in quasi-banking functions: (a) The adoption of a formula/criteria for QBs in the determination of compliance with the capital-to-risk assets ratio and ceilings on loans to DOSRI. That at no time shall such deposit be less than P500. 4405Q.4 Compliance period. Government securities acceptable to the BSP amounting to P500. submit to the BSP the following: a.4 08. b. 4415Q. § 4415Q. that is. 4415Q Security for the Faithful Performance of Investment Management Activities § 4415Q.1. before engaging in actual operations. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of investment management activity: a.12. and c.2 shall be eligible as security deposit for faithful performance of investment management activities.31 time the authority is granted. Names and positions of individuals designated as chairman and members of the investment management committee. The investment manager shall have thirty (30) calendar days after the end of every calendar quarter within which to deposit with t h e B S P s e cu r i t i e s r e q u i r e d u n d e r this Section. For purposes of determining compliance with the basic security deposit under this Section. Scripless securities under the RoSS system of the BTr may be used as basic security deposit for the faithful performance of investment management activities using the guidelines in Appendix Q-21.2 Eligible securities Securities enumerated in Subsec.000.§§ 4414Q. sanctions.3 Valuation of securities and basis of computation of the basic security deposit requirement. cost as increased or decreased by the corresponding discount or premium amortization.000 as minimum basic security deposit for the faithful performance of investment management duties required under Subsec. investment management officer and other subordinate officers of the investment management department. the amount of securities so deposited shall be based on their book value. § 4414Q. An institution authorized to engage in investment management activities shall.2 Pre-operating requirements.Page 27 .1 Basic security deposit An institution authorized to engage in investment management activities shall deposit with the BSP eligible government securities as security for the faithful performance of its investment management activities equivalent to at least one percent (1%) of the book value of the total volume of investment management assets: Provided. An applicant that fails in this respect shall be required to show compliance for another test period of the same duration.4415Q. Sec. The base amount for the basic security deposit shall be the average of the month-end balances of the total assets of investment management funds of the immediately preceding calendar quarter.1 . Organization chart of the investment management department which shall carry out the investment management activities of the institution. § 4415Q. On the QB: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . § 4415Q. and Q Regulations Part IV .000.9 shall govern the organization and management of institutions without trust license which are engaged in investment management activities only.Prohibition against the acceptance of new investment management accounts. IMAs in lieu of trust and other fiduciary accounts. (3) Third offense .00 P1.00 P4.00 P700.000. the head of the Investment Management Department shall be automatically held responsible since the ultimate responsibility for ensuring compliance with the regulation rests upon him.thirty (30) calendar day-suspension without pay. (As amended by Circular Nos. be used: a.00 P7. and from renewing expiring investment management contracts up to the time the violation is corrected.00 P10. as evidence may warrant. Investment management activities in lieu of trust and other fiduciary business.§§ 4415Q.31 i.000.00 P800. d.written reprimand with a stern warning that subsequent violations shall be subject to suspension.000. For purpose of determining the frequency of the violation the QB's compliance profile for the immediately preceding three (3) years or twelve (12) quarters will be reviewed: Provided. (2) Second offense . Non-monetary penalty beginning with the third offense (all QBs) .sixty (60) calendar day-suspension without pay. Monetary penalty/ies: Offense Trust Third and First Second Asset Size subsequent offense(s) Up to P500 P600.Page 28 (4) Subsequent offense(s) .000.00 exceeding P10 billion Above P10 billion but not P5. c. 4406Q. and Manual of Regulations for Non-Bank Financial Institutions .00 million Penalty per Calendar Day QBs with Full Trust Authority and with Trust Assets of Above P500 million P1. 617 dated 30 July 2008 and 585 dated 15 October 2007) Sec.4416Q 08.000.00 P3. 4406Q up to Subsec. all offenses committed by him in the past as the head of the Investment Management Department of other institution(s) shall also be considered: Provided. any offense committed outside the preceding three (3) year or twelve (12) quarter-period shall be considered as the first offense: Provided.4 . On the Head of the Investment Management Department and/or other officer(s) responsible for the deficiency/ non-compliance: (1) First offense . Investment management officer in lieu of trust officer.00 exceeding P50 billion Above P50 billion P8.00 ii.000. 4416Q Organization and Management The provisions under Sec. Investment management committee in lieu of trust committee.000. That in the case of the head of the Investment Management Department.12.000. however.warning that subsequent violations shall be dealt with more severely. The following terms shall.000.250. finally.00 but not exceeding P1 billion Above P1 billion but not P2. b. That for purposes of determining appropriate penalty on the head of the Investment Management Department and/or other responsible officer(s).00 P6. further.00 P1.500.00 P9. b. That if the offense cannot be attributed to any other officer of the QB. (As amended by M-2007-009 dated 22 March 2007) Sec. Each trust. 4417Q Non-Investment Management Activities. other fiduciary and IMAs separate and distinct from the books and records of its other businesses and shall follow the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities prescribed by the BSP. Sec. 4418Q Unsound Practices. 4408Q shall govern the unsound practices for IMAs. Sec.Page 29) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . before the declaration of dividends. other fiduciary or IMA and shall be supported by duplicate signed copies of related documents. trustee and fiduciary shall be disregarded. The provisions of Sec. Sec. Said records and duplicate signed copies or related documents shall (Next page is Part IV . That the trustee shall clearly indicate in the records the trustors owning participation in the CTF and the extent of the interest of such trustors.Page 28a .31 e. other fiduciary. The institution's trust department or investment management department shall keep books and records on trust. C. The provisions of Sec. Books and records shall contain full information relative to each trust. The provisions of Sec. GENERAL PROVISIONS Sec. other fiduciary or IMA shall have a record separate from all other accounts except only in the case of CTFs where the trustee can maintain common records utilizing pooled fund accounting method for each fund: Provided. 4419Q Conduct of Investment Management Activities. 4407Q shall apply in determining non-investment management activities except that the terms trust. 4411Q shall govern the conduct of investment management activities of an institution without trust license that is engaged in investment management activities.4421Q 07. but losses accruing in the course of its business may be charged against retained earnings. 4420Q Required Retained Earnings Appropriation. 4421Q Books and Records. Investment management department in lieu of trust department.12.§§ 4416Q . carry to retained earnings appropriated for trust business at least ten percent (10%) of its net profits realized out of its investment management activities since the last preceding dividend declaration until the retained earnings shall amount to twenty percent (20%) of its authorized capital stock and no part of such retained earnings shall at any time be paid out in dividends. An institution authorized to engage in investment management activities shall. referral and/or arrangement fees.31 be compiled and kept as to allow inspection by BSP examiners and submission of information or reports as may be required by competent authorities. properties or securities received by an institution in its capacity as trustee. For this purpose. 4401Q and 4407Q. That where the trustee. The terms and conditions of trust. and adequately identified as the assets or property of the relevant account. real estate brokers. other fiduciary or investment management funds over a certain amount or percentage. Officers and employees of the trust department or investment management department of institutions. other fiduciary or investment management agreements. insurance agents and similar persons or entities unless the rebates. 4424Q Taxes. designated for that purpose by the board of directors. in connection with loans sourced from trust funds managed by its trust department: Provided. prospectus. in accordance with the provisions of Secs.4424Q 06. In no case shall such fees and commissions be based on the excess of the income of the trust.§§ 4421Q . flyers. or any other fees that take the nature of payment to the institution from whatever source. other fiduciary or investment management account by stockbrokers. other fiduciary or investment management account shall be kept physically separated from those of other trust. other fiduciary or investment management account or the beneficiaries thereof. shall contain provisions regarding the applicability of regulations governing taxation on the income of trust. one of whom shall be an officer of the trust or investment management department. 4422Q Custody of Assets. further. Sec. fiduciary or investment manager in Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . fiduciary or investment manager shall solicit or receive rebates on commissions. for its own account. Sec.Page 29 . other fiduciary or investment management accounts. fiduciary. posters and all forms of advertising materials to market the fund and in the documents given to clients as proof of participation in the fund. 541 dated 30 August 2006) Sec. An institution acting as trustee. the trustee. (As amended by Circular No. while serving as such. 4423Q Fees and Commissions. the same shall be properly disclosed to the trustor.12. the fee which a trustee may charge each participant shall be fully disclosed by the trustee in the CTF plan. other fiduciary or investment management accounts. No trustee. other fiduciary or investment management account or beneficiaries of the trust. No institution shall collect. shall be prohibited from retaining any compensation for acting as co-trustee or fiduciary in the administration of a trust. fiduciary or investment manager shall be entitled to reasonable fees and commissions which shall be determined on the basis of the cost of services rendered and the responsibilities assumed: Provided. and shall accrue to the benefit of the trust. The investment of each trust. fiduciary or investment manager shall maintain adequate records and shall include information such as the amount of final income tax withheld at source and the amount withheld by the trustee. That if such fees are collected. That in the case of CTFs. or investment manager shall be kept physically separate and distinct from the assets of its other businesses and shall be under the joint custody of at least two (2) persons. fees and other payments for the services rendered to the trust. All monies. fiduciary or investment manager is acting as such under appointment by a court. the compensation shall be that allowed or approved by the court: Provided. fees and other payments shall accrue to the benefit of the trust. other fiduciary or investment management account. including CTF plans. beneficiaries. the conduct of periodic audits of the trust department or investment management department at least once every twelve (12) months. In any case. BSP rules and regulations.1 To trustor. and (8) Maturity date. The trust and other fiduciary business and investment management activities of an institution shall be included in the annual financial audit by independent external auditors required under Sec. if any. 4425Q Reports Required § 4425Q. Every institution acting as trustee.2 External audit.§§ 4424Q . Sec. (4) Amount invested. The board of directors.31 the periodic reports submitted to trustors. and d. fiduciary or investment manager shall render reports on the trust. principals and other parties in interest. (3) A schedule of earning assets of the account. The institution's internal auditor shall include among his functions. § 4426Q. and sound trust or fiduciary principles. 4172Q. shall be subject to auditing standards to the extent necessary to express an opinion on the financial statements. which shall cover at the minimum a review of the trust/investment management operations. fiduciary or investment manager shall submit periodic Q Regulations Part IV . § 4425Q. The reports shall be made available to clients not later than twenty (20) calendar days from the end of the reference date/ period in Item "c" above. The reports shall be in such forms as to apprise the party concerned of the significant developments in the administration of the account and shall consist of: (1) A balance sheet. including audit and internal control system.2 05. in a resolution entered in its minutes. (6) Amount of earnings. The reports shall be prepared in such frequency as required under the agreement but shall not in any case be longer than once every quarter.12. may also require the internal auditor to adopt a suitable continuous audit system to supplement and/or to replace the periodic audit. (5) Earning rate or yield. principal or other party in interest or the court concerned or any party duly designated by the court order. (2) Type of instrument. the audit shall ascertain whether the institution's trust and other fiduciary business and investment management activities have been administered in accordance with laws. principal. (3) Collateral. under the following guidelines: a. and (4) An investment activity report. practices and policies. beneficiary. 4426Q Audits § 4426Q.4426Q. c. Sec. The audit of the assets and accountabilities of the trust department/ investment management department of an NBFI authorized to engage in trust and other fiduciary business/investment management activities.Page 30 reports prescribed by the appropriate department of the SES on the institution's trust and other fiduciary business and investment management activities within the deadline indicated in Appendix Q-3. (7) Transaction date. The audit of the trust/investment management department of an institution authorized to engage in trust and other Manual of Regulations for Non-Bank Financials Institution .2 To the Bangko Sentral An institution acting as trustee. b. as the case may be.1 Internal audit. Items (3) and (4) above shall include at least the following: (1) Name of issuer or borrower. beneficiary. (2) An income statement. other fiduciary or investment management accounts to the trustor. Page 31 . fiduciaries or investment managers acceptable to the trustors. In case the surviving institution does not have previous authority but desires to engage in trust and other fiduciary business and in investment management activities. the authority to engage in trust and other fiduciary business and in investment management activities shall continue to be in effect if the surviving institution has such authority and the same has not been withdrawn by the BSP. fiduciary or investment manager. pursuant to the instructions of the Monetary Board.31 fiduciary business/investment management activities shall be covered by a separate supplemental audit report to be submitted to the institution's board of directors and to the BSP within the prescribed period containing. the receiver shall. Sec. Any NBFI which has been authorized to engage in trust and other fiduciary business or in investment management activities and which intends to surrender said authority shall file with the BSP a certified copy of the resolution of its board of directors manifesting such intention. the statements of condition of trust funds and managed funds and the related statements of earnings of both funds presented separately. by-laws and such other pertinent documents. § 4426Q. 4430Q . as well as the auditor's letter of comments/findings and recommendations. If the institution is found to have satisfactorily discharged its duties and responsibilities as trustee. proceed to close the trust. principals or other parties in interest: Provided.4441Q 07. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . articles of merger. and has provided for the orderly closure or transfer of its trust. fiduciary or investment management accounts. other fiduciary and investment management accounts promptly and/or transfer all other accounts to substitute trustees. The following rules and regulations shall govern securities custodianship and securities registry operations of QBs/trust entities. Whenever a receiver is appointed by the Monetary Board for an institution that is authorized to engage in trust and other fiduciary business or in investment management activities.3 Board action. 4441Q Securities Custodianship and Securities Registry Operations. 4427Q Authority Resulting from Merger or Consolidation. the receiver shall proceed pursuant to the instructions of said court. Secs. it shall secure from the Monetary Board an authority to engage in trust and other fiduciary business or in investment management activities before it may engage in such business. In the consolidation of FIs where the resulting entity is an entirely new one.2 . The appropriate department of the SES shall then conduct an examination of the institution's trust. 4428Q Receivership.§§ 4426Q. shall order the withdrawal of the institution's authority to engage in trust and other fiduciary management activities. Sec. That where the trustee.12. on the basis of the recommendation of the examining department. together with the actions thereon. shall be noted in the minutes of the board of directors of the institution. among other things. In merger of FIs. it shall secure the prior approval of the Monetary Board to engage in such business as part of its application for merger to enable it to incorporate such among its powers or purpose clause in its articles of incorporation. A report of the foregoing audits.4440Q (Reserved) Sec. 4429Q Surrender of Trust or Investment Management License. the Monetary Board. Sec. beneficiaries. fiduciary or investment manager is acting as such under appointment by a court. other fiduciary business and investment management activities. (As amended by M-2007-002 dated 23 January 2007.5 07. In this connection.5 P r e . However. c.2 Applicability of this regulation. § 4441Q.29. The application shall be signed by the highest ranking officer of the institution and shall be accompanied by a certified true copy of the resolution of its board of directors authorizing the institution to engage in securities custodianship and/or registry.§§ 4441Q . effective internal control and complete.4 Application for authority A QB/trust entity desiring to act as securities custodian and/or registry shall file an application with the appropriate department of the SES. Therefore. It must have a CAMELS composite rating of at least “4” (as rounded off) in the last regular examination. this regulation shall not cover the operations of stock and transfer agents duly registered with the SEC pursuant to the provisions of SRC Rule 364. traded. purchased. Q Regulations Part IV . It shall cover all their transactions in securities as defined in Section 3 of the Securities Regulation Code (SRC). 524 dated 31 March 2006) § 4441Q. It must have complied with the minimum capital accounts required under existing regulations not lower than an adjusted capital of P300 million or such amounts as may be required by the Monetary Board in the future. appropriately structured risk limits. timely and efficient risk reporting systems.4441Q. borrowed. a manual of operations (which includes custody and/or registry operations) and other related documents embodying the risk management system must be submitted to the appropriate department of the SES at the time of application for authority and within thirty (30) days from updates.12. M-2006-009 dated 06 July 2006. It is the policy of the BSP to promote the protection of investors in order to gain their confidence and encourage their participation in the development of the domestic capital market.31 The guidelines to implement the delivery by the seller of securities to the buyer or to his designated third party custodian are shown in Appendix Q-38.Page 32 § 4441Q.q u a l i f i c a t i o n requirements for a securities custodian/ registry a. b.3 Prior Bangko Sentral approval. It must be a QB or a trust entity. §4441Q.1 Statement of policy. QBs/trust entities may act as securities custodian and/or registry only upon prior Monetary Board approval. adequate risk measurement systems. held under custody or otherwise transacted in the Philippines where at least one (1) of the parties is a bank or an NBFI under BSP supervision. This regulation shall govern securities custodianship and securities registry operations of banks and NBFIs under BSP supervision. § 4441Q. the following rules and regulations are promulgated to enhance transparency of securities transactions with the end in view of protecting investors.1 and whose only function is maintain the stock and transfer book for shares of stock. that are sold. It must have in place a comprehensive risk management system approved by its board of directors appropriate to its operations characterized by a clear delineation of responsibility for risk management. e. M-2006-002 dated 05 June 2006 and Circular No. whether exempt or required to be registered with the SEC. Violation of any provision of the guidelines in Appendix Q-38 shall be subject to the sanctions/penalties under Subsec. 4441Q. It must have adequate technological capabilities and the necessary technical expertise to ensure Manual of Regulations for Non-Bank Financials Institution . d. safety and integrity of client assets.Page 33) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . (Next page is Part IV . g. and (2) single borrower’s limit. during the period immediately preceding the date of application. f. such as: (1) It can maintain an electronic registry dedicated to recording of accountabilities to its clients.31 the protection.5 05.12. and (2) It has an updated and comprehensive computer security system covering system. and (c) provide for audit trail of transactions.Page 32a . with the following: (1) ceilings on credit accommodation to DOSRI. (b) preserve data integrity. network and telecommunication facilities that will: (a) limit access only to authorized users. It has complied. It has no reserve deficiencies during the eight (8) weeks immediately preceding the date of application.§ 4441Q. 7 Functions and responsibilities of a securities registry a. It shall be conducted in a separate unit headed by a qualified person with at least two (2) years experience in custody/ registry operations. e. Acts as a collecting and paying agent: Provided. l. and e.8 Protection of securities of the customer. It has submitted additional documents/information which may be requested by the appropriate SED. b. Represents clients in corporate actions in accordance with the direction provided by the securities owner. Delivers confirmation of transactions and other documents within agreed trading periods. § 4441Q. That the custodian shall immediately make known to the securities owner all payments made and collections received with respect to the securities under custody. It has set up the prescribed allowances for probable losses. § 4441Q. but not limited to. d. (2) Organizational structure of the custody/registry business. Deeds of Assignment and court orders. as of date of application. further. f. Does earmarking of encumbrances or liens such as. and In addition to the above basic functions. Maintains an electronic registry book. § 4441Q. That the management of funds that may be collected shall be clearly defined in the custody contract or in a separate document or agreement attached thereto: Provided.5 .Page 33 . Follows appropriate legal documentation to govern its relationship with the Issuer. c. g. c.4441Q. Securities borrowing and lending operations as agent. Confirms tax withheld. Performs at least a monthly reconciliation to ensure that all positions are properly recorded and accounted for. Safekeeps the securities of the client. but not limited to: (1) Standard custody/registry agreement and other standard documents. i. orders or instructions of the Monetary Board and/or BSP Management. rules and regulations.12. b.8 05. d. and (4) For those already in the custody or registry business. and m.6 Functions and responsibilities of a securities custodian A securities custodian shall have the following basic functions and responsibilities: a. j. Issues registry confirmations for transfers of ownership as it occurs. j. k.§§ 4441Q. h. both general and specific. such as. (3) Transaction flow. Conducts mark-to-market valuation and statement rendition. a historical background for the past three (3) years. It can interface with the clearing and settlement system of any recognized exchange in the country capable of achieving a real time gross settlement of trades. It has not been found engaging in unsafe and unsound practices during the last six (6) months preceding the date of application. Prepares regular statement of securities balances at such frequency as may be required by the owner on record but not less frequent than every quarter. Holds title to the securities in a nominee capacity. sale and other instructions. It has generally complied with laws. A custodian must incorporate the following procedures in the discharge of its functions in order to protect the securities of the customer: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV . Executes purchase. it may perform the following value-added service to clients: i.31 h. (4) Identification or serial numbers. Custodians must employ accounting and safekeeping procedures that fully protect customer securities. A BSP-accredited securities registry must be a third party with no subsidiary/affiliate relationship with the issuer of securities while a BSP-accredited custodian must be a third party with no subsidiary/affiliate relationship with the issuer or seller of securities. (6) Face value. and c. Accounting and recording for securities. as a minimum. Purchases by non-residents and insurance companies that are exempted from the independence requirement of this Manual of Regulations for Non-Bank Financial Institutions . continue holding securities it sold under the following cases: a. It is essential that custodians segregate customer securities from one another and from its proprietary holdings to protect the same from the claims of its general creditors. Said statement shall present detailed information such as. It shall contain. outstanding balances. The governing custodianship agreement shall be pre-numbered and this number shall be referred to in all amendments and supplements thereto.9 Independence of the registry and custodian. if booked in the Trust Department: Provided. That securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be booked in the Trust Department. upon approval by the BSP.12. The custodian shall issue a custody confirmation to the purchaser or borrower of securities to evidence receipt or transfer of securities as they occur. where the purchaser is a non-resident with existing global custody agreement governed by foreign laws and conventions wherein the institution is designated as custodian or sub-custodian. but not limited to. role. All securities held under custodianship shall be recorded in the books of the custodian at the face value of said securities in a separate subsidiary ledger account “Securities Held Under Custodianship” if booked in the Bank Proper or the subsidiary ledger account “Safekeeping and Custodianship – Securities Held Under Custodianship”.8 .9 05. the authority. b.§§ 4441Q. d.31 a. fees and provision for succession in the event the custodian can no longer discharge its functions. the following information on the securities under custody: (1) Owner of securities. where the purchaser is a related entity acting in its own behalf and not as agent or representative of another. (3) Securities type. (2) Issuer. Confirmation of custody.Page 34 (7) Other information. The appropriate documentation for custodianship shall be made and it shall clearly define. (5) Quantity. which may be requested by the parties. inventory of securities. c. Periodic reporting. § 4441Q. b.4441Q. and market values. where the purchaser is an insurance company whose custody arrangement is either governed by a global custody agreement where the quasi-bank/trust entity is designated as custodian or sub-custodian or by a direct custody agreement with features at par with the standards set under this Subsection drawn or prepared by the parent company owning more than fifty percent (50%) of the capital stock of the purchaser and executed by the purchaser itself and its custodian. among others. responsibilities. however. It shall be accepted in writing by the counterparties. The custodian shall prepare at least quarterly (or as frequent as the owner of securities will require) securities statements delivered to the registered owner’s address on record. and Q Regulations Part IV . Documentation. A quasi-bank/ trust entity accredited by BSP as securities custodian may. 12 Compliance with antimoney laundering laws/regulations. may be held by a lending quasi-bank up to the original maturity of the loan or full payment thereof. No.4.12.14 05.000 whichever is higher. A BSP accredited custodian must maintain accounts only in the true and full name of the owners of the security. § 4441Q. said securities owners may be identified by number or code in reports and correspondences to keep his identity confidential.A. which is acting as a registry for government securities is deemed to be automatically accredited for purposes of this Section and is likewise exempted from the independence requirement under Subsec.9. § 4441Q. record keeping and reporting of suspicious transactions. However.Page 35 . For this purpose. the following subsidiary ledger account shall be created in the Trust Department Books: “Safekeeping and Custodianship Securities Held Under Custodianship with Securities Borrowing and Lending As Agent” Compliance shall be in the form of government securities deposited with the BSP eligible pursuant to existing regulations governing security for the faithful performance of trust and other fiduciary business. which shall Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part IV .4441Q. § 4441Q. whichever comes earlier. otherwise known as the “Anti-Money Laundering Act of 2001. 4441Q.11 Confidentiality. For purposes of compliance with the requirements of R.10 Registry of scripless securities of the Bureau of the Treasury The Registry of Scripless Securities (RoSS). Securities subject of pledge and/or deed of assignment as of 14 October 2004 (date of Circular 457). information/ documents required under the law and its implementing rules and regulations.9 . a BSP-accredited custodian may rely on referral by the seller/ issuer of securities: Provided. securities registered under the RoSS shall only be considered delivered if said securities were transferred by means of book entry to the appropriate securities account of the purchaser or his designated custodian. However. 4211Q. However. A BSPaccredited securities custodian/registry shall not disclose to any unauthorized person any information relative to the securities under its custodianship/registry.14 Reportorial requirements An accredited securities custodian shall comply with reportorial requirements that may be prescribed by the BSP. Book entry transfer to a sub-account for clients under the primary account of the seller shall not constitute delivery for purposes of this Section and of Subsec. operated by the Bureau of the Treasury.31 Section shall. 9160. particularly the provisions regarding customer identification. § 4441Q.13 Basic security deposit Securities held under custodianship whether booked in the Trust Department or carried in the regular books of the quasibank/trust entity shall be subject to a security deposit for faithful performance of duties at the rate of 1/25 of one percent (1%) of the total face value or P500. be subject to all other provisions of this Subsection. That it maintains a record of such referral together with the minimum identification. securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be subject to a higher basic security deposit of one percent (1%) of the total face value. The management shall likewise ensure the confidentiality of client accounts of the custody or registry unit from other units within the same organization.” as amended. however. § 4441Q.§§ 4441Q. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37. the face and market value of securities held under custodianship. No. §§ 4441Q. Manual of Regulations for Non-Bank Financial Institutions .4499Q 05.000 a day for the institution for each violation from the date Q Regulations Part IV . Secs.A. First offense – (1) Fine of up to P10. respectively.A. and such other sanctions as may be provided by law. Subsequent offenses – (1) Fine of up to P30.4498Q (Reserved) Sec.28 (Reserved) § 4441Q. No. 4499Q Sanctions.§§ 4441Q.29 Sanctions. and (2) Reprimand for the directors/officers responsible for the violation.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected.14 .Page 36 the violation was committed up to the date it was corrected.15 . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R. (2) Suspension or revocation of the authority to act as securities custodian and/or registry. No.4441Q. 7653. Second offense (1) Fine of up to P20. of the R. and (2) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. and (3) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. their directors and/or officers are shown in Appendix Q-39. violation of any provision of this Section shall be subject to the following sanctions/ penalties: a. 7653.31 include as a minimum. The guidelines for the imposition of monetary penalty for violations/offenses with sanctions falling under Section 37 of R. 4442Q . A.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected.12. 7653 on quasi-banks. c. b. without prejudice to the imposition of other sanctions as the Monetary Board may consider warranted under the circumstances that may include the suspension or revocation of an institution's authority to engage in trust and other fiduciary business or in investment management activities. Sec. and c. 4502Q Specific Foreign Exchange Activities. considering the special nature of IH operations. the nature of which requires the guarantor to assume the liabilities/obligations of third parties in case of their inability to pay. 4505Q Aggregate Ceiling on Issuance of Guarantees. d.D. Arranging or contracting of foreign loans for the account of the client firm. Construction or service firms with overseas contracts approved by the Department of Labor and Employment. 4504Q Applicability of Pertinent Bangko Sentral Rules.31 PART FIVE FOREIGN EXCHANGE OPERATIONS Section 4501Q Authority.12. and the discounting of export drafts: Provided. BSP-certified export-oriented firms. That the amount of letters of credit outstanding of an IH shall not exceed. or contracting of foreign loans for the account of the IH for relending to the client firm. subject to pertinent BSP rules and regulations. Sec.4505Q 05.With prior approval of the Monetary Board. and/or e.§§ 4501Q . an IH may engage in foreign exchange operations which shall be limited to the servicing of project or program requirements of the following enterprises: a. 129. Such other related foreign exchange activities as may be approved by the Monetary Board. including modifications thereof. That the total amount of foreign exchange transactions IHs may deal in shall not exceed the amount of the financing arranged or provided by the IH which involves the importation and exportation of related goods and services: Provided. No. foreign and domestic. Sec. Total standby letters of credit. Any IH that may be authorized to engage in foreign exchange operations shall set up a separate department/unit to handle such operations. b. No. twice its net worth. The specific foreign exchange operations which IHs may undertake in connection with the preceding Section are: a. Entering into forward foreign exchange contracts with the BSP in connection with the foregoing activities. Chapter IV of R. Holding foreign currency balances with foreign correspondents in connection with export-related services but in no case for speculative purposes. shall not exceed fifty percent (50%) of the quasi-bank’s net worth.A. c. Providing import.and exportrelated services to said firms such as letters of credit and other acceptable modes of payment. b. Board of Investments-registered export-oriented firms. as amended. further. 7653 and Section 7(13) of P. The foreign exchange operations of an IH are subject to all applicable BSP rules and regulations on foreign exchange operations. except as may otherwise be specifically authorized by the Monetary Board. at any given time. Sec. that may be issued by quasi-banks and outstanding at any given time. except Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part V .Page 1 . and the sanctions in connection therewith. including guarantees. 4503Q Separate Department. and subject to the provisions of Article III. Coverage. Page 2 of this Part shall be subject to Sections 36 and 37 of R. No.12. The guidelines for the imposition of monetary penalty for violations/offenses with sanctions falling under Section 37 of R. Secs.A. 4506Q . hold-out on deposits/deposit substitutes on government securities. 7653. No.31 those fully secured by cash. Manual of Regulations for Non-Bank Financial Institutions .4598Q (Reserved) Sec.§§ 4505Q . 7653 on quasi-banks.4599Q 05. 4599Q General Provision on Sanctions. their directors and/or officers are shown in Appendix Q-39. Any violation of the provisions Q Regulations Part V . A. OTHER OPERATIONS Sec. § 4601Q. The above evidences of indebtedness must be freely negotiable and regularly serviced and must be available to the general public through banks. b. Repo agreements may be effected with the BSP subject to the following terms and conditions: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . d. 7653: a.§§ 4601Q .1 Settlement procedures Purchase and sale of government securities under repo agreements (GS/repo agreements) between and among banks and QBs and BSP in connection with the latter’s open market operations shall be settled in accordance with the provisions of the agreement for the PhilPaSS executed on 12 December 2002 between the BSP and IHAP and any subsequent amendments thereto. No. If settlement of the amount due is not made within three (3) days from the date of its disqualification. 4601Q Open Market Operations The following rules and regulations shall govern the buying and selling of government securities in the open market pursuant to Section 91 of R.31 PART SIX MISCELLANEOUS A.6 . (As superseded by the agreement between the BSP and IHAP dated 12 December 2002) §§ 4601Q. and (3) Should an issuer of a repo agreement become no longer qualified as such.1.BSP trading windows and services during public sector holidays. and (2) Evidences of indebtedness issued by government instrumentalities and fully guaranteed by the Government.12.4601Q. Reverse repo agreements covering the sale of portion of the security holdings of the BSP portfolio may be made under the terms provided for in Subsec. they may be sold in the open market or transferred to the BSP Portfolio. Outright purchases and sales of government securities shall be effected on the basis of the lowest price offered or the highest price bid. the BSP shall proceed to collect said amount in accordance with the preceding paragraph. (2) In the event the securities covered by the repo agreement are not repurchased by the issuer of such agreement. 4602Q. QBs and accredited government securities dealers and shall be made under the terms provided for in Sec.5 (Reserved) § 4601Q. c. Repo agreements shall be open to banks (except RBs).4602Q 08. its outstanding repo agreement shall immediately become due and payable. (M-2008-025 dated 13 August 2008) Sec.2 .A. 4602Q Repurchase Agreements with the Bangko Sentral. The guidelines on BSP’s trading windows and services during public sector holidays are shown in Appendix Q-50.Page 1 . QBs and accredited government securities dealers. 4602Q and the following: (1) The repo agreement may be paid at any time before maturity at the option of the issuer of the repo agreement. The BSP may buy and sell in the open market for its own account: (1) Evidences of indebtedness issued directly by the Government of the Philippines or by its political subdivisions. BSP. Reverse repo agreements may be effected with the BSP subject to the following terms and conditions: Q Regulations Part VI . For overnight repo agreements. which are fully guaranteed by the Government. which tax is deducted on each maturity date and remitted to the BIR. published interest rates that will be applied on BSP’s reverse repo agreements shall be inclusive of Value Added Tax (VAT). Government securities which are held by the issuer of the repo agreement under the book-entry system with the BSP may be used as underlying instruments only with the conformity of the BSP. the issuer of such agreement shall claim and take delivery of the underlying instruments at the Treasury Department. The collateral shall consist of obligations of the National Government and other freely negotiable securities in the BSP portfolio valued at 100%. (2) The total twenty percent (20%) FWT on the overnight reverse repo agreements due starting 01 January 2008 Manual of Regulations for Non-Bank Financial Institutions . At the option of the Treasury Department. with the concurrence of the Governor. but a custody receipt shall be issued instead. b. Failure to claim and take delivery of the underlying instruments immediately upon such termination shall relieve the BSP of any liability or responsibility for the loss or misplacement of said instruments. Upon termination of the repo agreement. Reverse repo agreements entered into by the BSP with any authorized agent bank (AAB) are included in the definition of the term “deposit substitutes” under Sec.Page 2 a. with a remaining maturity of not more than ten (10) years and which are freely negotiable and regularly serviced. availments may be for a minimum of one (1) day (overnight) and a maximum of 364 days.1 08.1 Reverse repurchase agreements with Bangko Sentral. d. e. Only obligations of the National Government and its instrumentalities and political subdivisions. At the option of the Treasury Department. b. under the following guidelines: (1) A l l o v e r n i g h t r e v e r s e r e p o agreements with the BSP shall be subject to the twenty percent (20%) FWT in the same manner as term reverse repo agreements. c. Security.§§ 4602Q . taking into account prevailing liquidity/market conditions. e. 22 (y) Chapter 1 of the National Internal Revenue Code of 1997. 2008. c. Term. Effective 01 July 2003. shall be eligible as underlying instruments for repo agreements. d. § 4602Q. Security. Rate. with the concurrence of the Governor. The rates on the repurchase facility shall be set by the Treasury Department. delivery of the underlying instruments shall be made not later than 12:00 noon of the date of transaction. The BSP shall withhold twenty percent (20%) Final Withholding Tax (FWT) on its overnight reverse repo agreements starting January 1. Reservation. Delivery of the underlying instruments shall be made to the BSP at the prescribed time. Term. Rate. Delivery. No delivery of the collateral shall be made. Delivery.12.31 a. availments may be for a minimum of one (1) day (overnight) and a maximum of ninety-one (91) days. subject to the collateral requirement prescribed by the BSP.4602Q. taking into account the prevailing liquidity/market conditions. The rates shall be set by the Treasury Department. Prepayment may be made by the BSP at its option anytime before maturity. 636 dated 17 December 2008 and 619 dated 22 August 2008) Sec.Page 2a . QBs and/or their subsidiaries/affiliates may engage in financial derivatives activities upon prior approval of the BSP.4603Q 08. and (3) Concerned banks shall issue the corresponding debit authority to the BSP to cover the twenty percent (20%) FWT on their overnight reverse repo agreements with the BSP mentioned in Item “2” above. (As amended by Circular Nos.1 .31 until 08 September 2008 shall be divided equally in the remaining months of taxable year 2008. (Next Page is Part VI-Page 3) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI .12. 4603Q Derivatives.§§ 4602Q. The installments due will be deducted every end of the month from the RDDA of concerned banks. § 4603Q. and (v) Fully documented and independently validated. such as. and (d) Maximum allowable open foreign exchange position. and TOFA-Others. (2) Requirements.Page 3 . b. For engaging in derivatives transactions as end-users (1) Scope. That the FI shall hedge such derivatives: Provided. While the ideal method of measuring these risks is through "value-at-risk” methodology. For regular derivatives authority (1) Scope. CTFs.31 § 4603Q. (iv) Consistent with the level and complexity of the institution’s trading activities. Such approval must clearly specify the following as minimum guidelines: (a) Derivatives products to be used and the type of transactions to be hedged shall be specified. An application to engage in a regular derivatives activities may be granted upon determination by the BSP that the applicant possesses: (a) The ability to account for its currency exposures on a per currency basis through its Multi-Currency Subsidiary Ledger. That these are: (i) Capable of measuring and aggregating risks across trading and nontrading activities. (2) Pre-qualification requirements. (b) Minimum applicable capital adequacy ratio. The following provisions shall govern the scope and pre-qualification requirements for the grant of authority to engage in derivatives activities.1 Scope and pre-qualification requirements. A licensed FI may sell derivatives products to its customers: Provided. a. The FIs shall show proof of approval by their board of directors to use derivatives. (iii) Consistent with board-approved risk appetite. BSP shall evaluate quasi-bank’s and other BSP supervised FI’s financial soundness and track record of compliance with major prudential requirements. and (d) Transactions shall be reported regularly to the board of directors. further. FIs may engage in derivatives transactions purely as end-users and do not need a license for such activities. (d) The ability to monitor counterparty risks on outstanding contracts through a methodology that reflects changes in credit exposure as market rates change. (c) Minimum reserves against deposit liabilities/deposit substitutes. there shall be no speculative activity. alternative systems are acceptable: Provided. and (f) The procedures for evaluating client suitability. (e) The technical competence of key officers/traders responsible for the derivatives products. (c) Dealings shall only be with licensed/authorized counterparties.12. That the risk being hedged is already existing with the FI itself. (3) Other requirements. but not limited to: (a) CAMELS composite rating of at least “3” in the last regular examination. Swaps and forwards designated as hedge only at inception may be accounted for using the accrual method. (ii) Approved by the FI’s board of directors. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . (b) The ability to account for swaps and forwards either through the accrual or net present value basis. (b) Transactions shall be limited to hedging purpose only. Forwards designated as trading shall be marked-to-market daily using the net present value methodology.1 05. Financial institutions (FIs) supervised by the BSP may apply for a regular derivatives license. (c) The ability to manage and monitor price risks for the whole derivatives portfolio to ensure continuous assessment of the effectiveness of the hedge. A. The license may be renewed subject to compliance with the following: (1) BSP standard of financial soundness and track record of compliance with major prudential regulations. Risk disclosure statements. Forex Corporation) shall be with prior BSP approval.000 per transaction. a monthly report on transactions/ outstanding derivatives transactions shall also be required for quasi-banks which enter into derivatives contracts as end-user. shall be imposed on any quasi-bank. The following guidelines shall be observed for the annual renewal of derivatives licenses of quasi-banks: (1) For derivatives granted before 17 September 2001. a cease and desist order shall be imposed. The license to engage in derivatives activities shall be for a period of one (1) year.§§ 4603Q. the licenses shall be renewed on or before 17 September of each year. A detailed statement on the position of the clients/customers must be sent to them periodically.. b. Said licenses shall be renewed on or before said date.12. a. The quasi-banks will be notified of the BSP action on their request.4603Q. in addition to a monetary penalty of P10. Failure to submit said written request within the prescribed period shall be presumed not renewing said licenses.7 Sanctions.4 Risk management guidelines. Until such notice is received. No. its subsidiaries/affiliates (including directors or officers) that engage in derivatives activities without prior BSP approval. Monetary penalties prescribed under Sections 35. which should at least contain the disclosure statements in Appendix Q-16. the licenses are operative for a period of one (1) year reckoned from the date of approval. (2) For derivatives granted after 17 September 2001. § 4603Q. and (3) Quasi-banks shall submit a written request to renew their derivatives licenses at least forty-five (45) calendar days before the expiration of the existing licenses. quasi-banks and/or their subsidiaries/affiliates shall observe the guidelines enumerated in Appendix Q-17.7 05.Page 4 § 4603Q. quasi-banks can continue to enter into new derivatives contracts as allowed under their previously approved licenses. and (3) Adequate internal control system and procedures including record keeping for derivatives activities.2 Transactions between parent and subsidiary.6 Reporting requirements Aside from the daily/monthly FX position reports. shall be provided to the clients/customers of quasibanks and/or their subsidiaries/affiliates in order to advise the former of the risks involved in derivatives activities. Quasi-banks and/or their subsidiaries/ affiliates authorized to engage in derivatives activities shall adopt a policy manual that contains the minimum features and principles embodied in the Risk Management Guidelines for Derivatives (Appendix Q-15). In recording derivatives activities in the books. the licenses are operative only until 17 September 2002.2 . § 4603Q. Q Regulations Part VI . 7653 and/or suspension of foreign exchange operations.g. shall be renewed on or before the end of the one (1)-year period. § 4603Q. If the quasi-bank submits an erroneous written representation or certification. § 4603Q.5 Accounting guidelines.31 § 4603Q. (2) Adequate risk management systems. Subsequently. All derivatives transactions between parent quasi-bank and subsidiary (e. The licenses therefore. 36 and 37 of R. The quasi-bank’s derivatives operations may only be resumed after the appropriate SED has Manual of Regulations for Non-Bank Financial Institutions .3 Renewals. 13 (Reserved) § 4603Q. It is the policy of the BSP to support the deepening of the Philippine financial markets. (2) resident non-bank entities.15 07. Foreign exchange swap shall refer to a transaction involving the actual exchange of two (2) currencies (principal amount only) on a specific date at a rate agreed on deal date (the first leg). and a reverse exchange of the same two (2) currencies at a date further in the future (the second leg) at a rate (different from the rate applied to the first leg) agreed on deal date. 591 dated 27 December 2007) § 4603Q. or (3) A corporation or other juridical person organized under the laws of the Philippines. That forward sale of FX (deliverable and non-deliverable) may only be used when the underlying transaction is eligible for servicing by the banking system under Circular No. Customers may.7 . cover their funding requirements thru FX swaps. Foreign exchange exposure shall refer to an FX risk arising from an existing commitment which will lead to an actual payment of FX to.Page 5 . or (2) An individual who is not a citizen of the Philippines but is permanently residing therein. or (4) A branch.12. Non-resident shall refer to an individual. affiliate. extension office or any other unit of corporations or juridical persons which are organized under the laws of any country and operating in the Philippines. c. subsidiary. §§ 4603Q. customers may. except offshore banking units (OBUs). Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . or receipt of FX assets from. hedge their market risks arising from FX obligations and/or exposures: Provided. Resident shall refer to (1) An individual citizen of the Philippines residing therein. (As amended by Circular No. shall cover FX forward and swap transactions involving the Philippine peso between authorized dealer QBs and their customers. and (3) non-residents. f. b. non-residents or any AAB based on verifiable documents on deal date. e. FX risks arising from BSP-registered foreign investments without specific repatriation dates are considered FX exposures. thru FX forwards.§§ 4603Q. Customers shall refer to: (1) resident banks (other than KBs and UBs) and non-bank BSP-supervised entities (NBBSEs) not authorized to engage in FX forwards and swaps as dealers. the total notional amount of the FX derivatives transaction/s shall not exceed the amount of the underlying FX obligation/exposure. both banks and nonbanks.4603Q.15 Definition of terms a. There shall be no double/multiple hedging such that at any given point in time. as amended. a corporation or other juridical person not included in the definition of resident. likewise.4603Q.8 . In line with this policy.14 Forward and swap transactions Statement of policy. Foreign exchange obligation shall refer to an actual commitment to repatriate or pay to a non-resident or any AAB a specific amount of foreign currency on a preagreed date. 1389 dated 13 April 1993. The following guidelines. The customer shall no longer be allowed to buy FX from the banking system for FX obligations/exposures that are fully covered by deliverable FX forwards and FX swaps. d. as well as minimum documentary requirements. QBs may only engage in FX forwards and swap transactions with customers if the latter is hedging market risk or covering funding requirements.31 made a thorough validation of the QB’s compliance with requirements. g. prior BSP approval has been obtained for the prepayment and a copy of such approval is presented to the QB counterparty. Forward sale of FX (whether deliverable or non-deliverable).18 07. (As amended by Circular No. (As amended by Circular No. h.No restriction on tenor. the fixing rate) shall be settled on the forward date.2” of Appendix Q-29. Settlement of NDFs. or (ii) the approximate due date or settlement of the FX exposure.4603Q. That for foreign currency loans. For this purpose. The tenor/ maturity of such contracts shall not be longer than: (i) the maturity of the underlying FX obligation. roll-overs or non-delivery of all FX deliverable forward contracts and the forward leg of swap contracts shall be subject to the following guidelines to determine the validity thereof: a. beneficiaries shall refer to the FCDU of a QB or a non-resident entity (e. investor) to whom the customer is committed to pay/remit FX. the tenor/ Q Regulations Part VI . Minimum documentary requirements for FX forward and swap transactions in Appendix Q-29 shall be presented on or before deal date to the QBs unless otherwise indicated. FX Swaps. 591 dated 27 December 2007) § 4603Q.Contracts must be supported by documents listed in Appendix Q-29 hereof. For deliverable FX forward contracts.. and signed by the QB’s authorized officer.e.31 g. FX proceeds of deliverable forward and swap contracts shall be delivered by the QB counterparty directly to the beneficiaries concerned except for foreign investments where said FX proceeds are reconverted to Philippine pesos and re-invested in eligible peso instruments such as those listed in Item “A. Frequency test . b. supplier. Eligibility test . (As amended by Circular No. roll-over or non-delivery shall be based on the results of the evaluation of the justification/explanation submitted by QBs as evidenced by appropriate documents. For funding transactions: “FX SOLD”.18 Cancellations.All NDF contracts with residents shall be settled in pesos. For hedging transactions: “FX HEDGED/DELIVERABLE” or “FX HEDGED/ NON-DELIVERABLE”. 591 dated 27 December 2007) § 4603Q. d. This shall not preclude pretermination of the contract due to prepayment of the underlying obligation or exposure: Provided.. b.2.12. Counterparty test – the cancellation or roll-over of contracts must be duly Manual of Regulations for Non-Bank Financial Institutions . FX selling QBs shall stamp the supporting documents upon presentation by customers as follows: a. 591 dated 27 December 2007) § 4603Q. b. The retained copies shall also be marked “DOCUMENTS PRESENTED AS REQUIRED” and signed by the QB’s authorized officer.15 . Copies of all duly marked supporting documents shall be retained by the QBs and made available to the BSP for verification.Page 6 maturity shall be co-terminus with the maturity of the underlying obligation or the approximate due date or settlement of the FX exposure. All cancellations. Non-deliverable forward (NDF) shall refer to an FX forward contract where only the net difference between the contracted forward rate and the market rate at maturity (i. creditor.16 Documentation. c. Remittance of FX proceeds of deliverable forward and swap contracts.§§ 4603Q. c. indicating the contract date and amount involved. roll overs or non-delivery of FX forward and swap contracts.the reasonableness of the cancellation. Foreign exchange forward shall refer to a contract to purchase/sell a specified amount of currency against another at a specified exchange rate for delivery at a specified future date three (3) or more business days after deal date.17 Tenor/maturity and settlement a. 31 acknowledged by the counterparty to the contract as shown in documents submitted by QBs.A.22 . § 4603Q. but the excess position is less than thirty percent (30%) of the allowable limit.26 Sanctions. third or more days of violation Daily Penalty P 10. No.21 shall comply with existing regulations on antimoney laundering under Sec.14 to 4603Q.18 . (As amended by Circular No. when the violation continues beyond three (3) business days within a calendar month. The reports shall be transmitted to the International Department at [email protected] 07.12. (As amended by Circular No.000 b.000 20. i.20 Compliance with AntiMoney Laundering rules. d. schedules showing among others.e. 7653 (The New Central Bank Act) and other existing banking laws and regulations.. 4691Q. there should be conforme of counterparty as evidenced by the counterparty signature on pertinent documents. 4603Q.e.. Cancellations.14 to 4603Q. Q Regulations Part VI . (As amended by Circular No. Swap contracts with counterparties involving purchase of FX by QBs at the initial leg shall likewise be reported electronically in excel format to the BSP not later than five (5) business days after reference month as indicated in Appendix Q-3. mark-to-market valuation computation. regardless of whether a quasi-bank is in the first. second.000 30. Mark-to-Market test– the booking or recording in the books of accounts of the profit or loss on contracts and cash flows/settlement to counterparties must be fully supported by appropriate documents such as authenticated copy of debit/credit tickets. 4603Q.21 Reporting requirements QBs duly authorized to engage in derivatives transactions shall continue to be covered by the BSP’s existing reporting requirements on financial derivatives. Violations of Subsecs. 591 dated 27 December 2007) § 4603Q. the following nonmonetary sanctions shall be imposed on the QB committing violations considered as: (1) chronic.25 (Reserved) § 4603Q. Only banks with expanded derivatives license may enter into NDF contracts to sell FX to nonresidents. 591 dated 27 December 2007) § 4603Q. Monetary Penalties Per Calendar Month 1 st business day 2 nd business day 3rd business day of violation. "Chronic" violation " Abusive" violation Manual of Regulations for Non-Bank Financial Institutions Suspension of the QB’s cash dividend declaration and branching privileges until the violation is corrected but in no case shall such suspension be less than thirty (30) calendar days. Suspension of the QB's cash dividend declaration and branching privileges until the violation is corrected but in no case shall such suspension be less than sixty (60) calendar days.g. In addition. or if the excess FX position is 30% or more of the allowable limits in any business day.Page 7 .ph. and (2) abusive. a. copy furnished the SDC. All transactions under Subsecs.4603Q. 591 dated 27 December 2007) §§ 4603Q. and onwards.21 shall be subject to the penalty provisions under R. e. when the violation continues beyond three (3) business days within a calendar month and excess position is thirty percent (30%) or more of the allowable limit..§§ 4603Q.gov.19 Non-deliverable forward contracts with non-residents. roll-overs or non-delivery of deliverable FX forward contracts and under the forward leg of swap contracts shall be reported electronically in excel format to the BSP not later than five (5) business days after reference month as indicated in Appendix Q-3. i.4603Q. etc. 129. Manual of Regulations for Non-Bank Financial Institutions . which are domiciled in the Philippines. Such assets are generated in the ordinary course Q Regulations Part VI . c. Seller shall refer to the entity which conveys to the SPT the assets that constitute the asset pool. 4604Q Underwriting by Investment Houses. Counterparties that habitually cancel deliverable forwards without proper justification may be subject of a BSP watchlist. j. d. 4626Q Asset-Backed Securities. The following regulations shall govern the origination. consumption loans.Page 8 of business of the originator and may include mortgage loans.21 are classified as Category B reports and subject to corresponding penalties. k.12. The Monetary Board may impose other non-monetary sanctions on a QB for violations determined by BSP as “chronic” or “abusive” on a case-to-case basis. reports required under Subsec.4626Q. b. A monetary penalty imposed on a QB shall be paid to the BSP Cash Department. within three (3) business days from the receipt of advice of said penalty imposition. Asset-backed securities shall refer to the certificates issued by a special purpose trust (SPT) representing undivided ownership interest in the asset pool. erroneous or unsubmitted reports. 7653. i. (As amended by Circular No. No. Residual certificates shall refer to certificates issued representing claims on the remaining value of the asset pool after all ABS holders are paid. Assets shall mean loans or receivables existing in the books of the originator prior to securitization. issuance. 591 dated 27 December 2007) Sec.§§ 4603Q.1 07. No. 4605Q . sale. § 4626Q. e. For purposes of imposing sanctions for delayed. Originator shall refer to a QB and/ or its subsidiary or affiliate engaged in allied activities that grants or purchases loans or receivables and assembles them into a pool for securitization. pursuant to Section 37 of R. Asset pool shall mean a group of identified. Underwriting commitments and fees of IHs shall be subject to the rules issued by the SEC to implement the provisions of P. f.31 c. Secs. Investible funds shall refer to the proceeds of collection of loans or receivables included in the asset pool which are not yet due for distribution to investors. Clean-up call shall refer to an option granted to the seller to purchase the remaining assets in the asset pool. trade receivables.1 Definition of terms a. g.26 . Guarantor shall refer to an entity that guarantees the repayment of principal and interests on loans or receivables included in the asset pool in the event of default by the borrower. self-amortizing assets that is conveyed to the SPT issuing the ABS and such other assets acquired as a consequence of the securitization. Issuer shall refer to the SPT that issues the ABS. credit card receivables and other similar financial assets. as amended (Appendix Q-18). QBs shall be duly advised by the BSP of their violations and the corresponding sanctions imposed for such violations.A. Credit enhancement shall refer to any legally enforceable scheme that is intended to enhance the marketability of the ABS and increase the probability that investors receive payment of amounts due them. lease receivables. e. 4603Q. h. servicing and administration of asset-backed securities (ABS) by any QB including its subsidiaries and affiliates engaged in allied activities. d.D.4625Q (Reserved) Sec. § 4626Q.Page 9) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . Servicer shall refer to the entity designated by the issuer primarily to collect and record payments received on the assets.12.Page 8a . Special purpose trust shall refer to a trust administered by a trustee and created solely for the purpose of issuing and administiring an ABS.31 l.1 05. m. (Next page is Part VI . to remit such collections to the issuer and perform such other services as may be specifically required by the issuer excluding asset management or administration. 4626Q. Trust indenture evidencing the conveyance of the assets from the seller to the issuer or SPT. (4) Assumptions underlying the cash flow projections for each class of certificate. o. and (7) Disclosure statements as required under Subsec. indicating in noticeable print. Specimen of application to purchase ABS.5 Minimum features of asset-backed securities.6.12. § 4626Q.5 05. the features of which shall include the following: (1) Title or nature of the contract in noticeable print. As a minimum requirement. (3) Features and amount of ABS. (4) Purposes and objectives. (6) Representation and warranties. (8) Distribution of funds. Trustee shall refer to the entity designated to administer the SPT. and (12)Termination and final settlement. (9) Authorized investment of investible funds.1 . The transfer shall be recorded in the books of the trustee. They are transferable by endorsement of the certificate. § 4626Q. may securitize its assets upon prior approval of the BSP.4 Minimum documents required. (7) Credit enhancements. The originator/seller shall integrate such securitization program into its corporate strategic plan. (3) Description of the assets comprising the asset pool as well as the representations and warranties set forth by the originator and/or seller. Specimen of certificate. (11)Reports to investors. it shall contain the following: (1) Summary of the contents of the prospectus. b.31 n. The ABS shall be pre-numbered and printed on security paper. (5) Description and amount of assets comprising the asset pool. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . It shall include the terms and conditions of the purchase and the disclosures required under Subsec. payment dates and priority of payments. Any quasibank including its subsidiaries and affiliates engaged in allied activities. c. (2) Description of each class of certificates. indicating the names of the parties to the transaction. (6) Identity of the servicer. (2) The parties involved. including such matters as probable yields. the date of the transfer and the number of the certificate transferred. 4626Q. The ABS shall be signed and authenticated by the trustee. (10)Rights of the investor. It shall indicate the features of the ABS and the disclosures required under Subsec.2 Authority. The trust indenture shall include as annexes the servicing agreement between the trustee and the servicer and the underwriting agreement between the seller and the underwriter. The application to securitize must be accompanied by the following documents as a minimum requirement: a.6. 4626Q.000. responsibilities and functions.3 Management oversight The originator/seller shall have the securitization program approved by its board of directors. The board of directors shall ensure that the securitization of assets is consistent with such program. 4626Q.Page 9 .6. (5) Description of any credit enhancement. Underwriter shall refer to the entity engaged in the act or process of distributing and selling of the ABS either on guaranteed or best-efforts basis. Prospectus. § 4626Q. The minimum denomination of any ABS shall be P10.§§ 4626Q. d. § 4626Q. their respective legal capacities. § 4626Q. seller or servicer can either control or verify with reasonable due diligence at the time the assets are sold.Page 10 For accounting purposes. for this purpose.4626Q.6 Disclosures. e. b. except the residual certificate. The following disclosures must be provided in a conspicuous manner in any document inviting investment. (3) damages are limited to the loss incurred as a result of the breach. the transfer shall only be considered a true sale if the following three (3) conditions have been satisfied: (1) the transferred assets have been isolated and put beyond the reach of the seller and its creditor. servicer or trustee and that they are not insured with PDIC. Any breach of representation or warranty may give rise to legal recourse.§§ 4626Q.12. However. The trustee does not guarantee the capital value of the ABS or the collectibility of the asset pool. A breach of this requirement will be considered a credit enhancement and should be charged against capital. The rights of an investor. b. Q Regulations Part VI .31 § 4626Q. The seller shall have no obligation to repurchase or substitute an asset or any part of the asset pool at any time. Any agreement to pay damages as a result of breach of warranties and representations shall hold only where: (1) there is a well-documented negotiation of the agreement in good faith.7 Conveyance of assets a. or under a revolving structure. Sold assets shall be taken off the books of the seller and shall be transferred to the books of the SPT. The conveyance of the assets comprising the asset pool shall be done within the context of a true sale and. conveyance of the asset pool including expenses for credit enhancement may be paid by the originator/seller: Provided. (2) the burden of proof for a breach of representation or warranty rests with the other party. All expenses incidental to underwriting. c. c. and d. The investor has investment risks. § 4626Q. (2) the SPT has the right to pledge or exchange its interest in the assets.8 05.8 Representations and warranties a. application to purchase ABS and in the certificate itself: a. and (3) the seller does not effectively maintain control over the transferred assets by any concurrent agreement. The investors shall be required to sign an acknowledgment indicating that they have read and understood the disclosures. b. to replace performing assets which have been paid out in part or in full. The representations or warranties shall be clear and explicit and. in particular. c. That no further expenses shall be borne by the originator/seller after the asset pool has been conveyed to the SPT. the seller may not retain in its books the ABS. and (4) there is a written notice of claim specifying the basis for the claim. Standard representations and warranties refer to an existing state of facts that the originator. The seller shall be under no obligation to provide additional assets to the SPT to maintain a coverage ratio of collateral to outstanding ABS. shall not relate to the future creditworthiness of the assets in the asset pool or the performance of the SPT or the securities issued. d. The ABS do not represent deposit substitutes or liabilities of the originator.6 . this will not apply to an asset pool conveyed under a revolving structure such as the securitization of credit card receivables. Manual of Regulations for Non-Bank Financial Institutions . except in cases of a breach of representation or warranty. if any. Securitized assets shall be considered the subject of a true sale between the seller and the SPT. b. the trust departments of its subsidiaries/affiliates. The servicer shall report to the trustee within thirty (30) days any borrower which fails to pay its debt at maturity date or any adverse development that may affect the collectibility of any loan account or receivable comprising the asset pool. b. § 4626Q. The trustee shall see to it that necessary measures are taken to protect the asset pool. The trustee shall initiate all civil actions including foreclosure of mortgaged properties to effect collection of receivables in the asset pool. collections.10 Originator and seller a. but in no case shall the remittance period be longer than one (1) month. The trustee shall have the right to manage or administer the asset pool.§§ 4626Q.11 Trustee and issuer a. c.12 Servicer a. e.31 The BSP shall be notified of any instance where a quasi-bank or its subsidiaries/affiliates has agreed to pay damages arising out of any breach of representation or warranty. d.12.13 05. The trustee may invest the investible funds only in obligations issued and/or fully guaranteed by the government of the Republic of the Philippines or by the BSP and such other high-grade readily marketable debt securities as the BSP may approve. The servicer or any other party may be designated by the trustee to perform such function on a case-by-case basis. which report shall be made available to the investors at anytime after thirty (30) days from end of the reference quarter.13 Underwriter a. among others. The trustee shall be the trust department of a bank licensed to do business in the Philippines. § 4626Q.8 . The trustee shall designate a replacement of the servicer if the latter fails to satisfactorily perform its duties and responsibilities according to the terms and conditions of the servicing agreement. The seller or originator shall deliver to the trustee all original documents or instruments with respect to each asset sold. c. and may likewise be designated as the servicer. The servicer shall perform its duties according to the terms and conditions of the servicing agreement and such other written instructions as the trustee may issue on a case-by-case basis. § 4626Q. § 4626Q. f. b. b. fees and other expenses as well as defaults.Page 11 . Collections made by the servicer shall be remitted promptly to the trustee or as may be agreed upon by the parties in the servicing agreement. d. The servicer shall have no authority to waive penalties and charges except with a written authority from the trustee. except those administered by its trust department. An underwriter may deal in ABS. The trustee shall undertake a performance review of the asset pool at least quarterly and shall prepare a report to investors indicating. The seller may itself be the originator. The servicer shall prepare periodic reports as may be required by the trustee. c. A UB or IH shall have written policies and procedures on underwriting of ABS. A due diligence review by an independent entity mutually agreed upon by the seller and the issuer shall be done before the assets are sold. the trust department Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI .9 Third party review. § 4626Q.4626Q. The underwriter shall perform its functions according to the terms and conditions of the underwriting agreement. if held by the seller. Where the asset pool includes foreclosed and other assets. e. subordinated securities shall be sold to third party investors other than the originator’s/seller’s parent company or its subsidiary/affiliate and the trustee or its subsidiary/affiliate or. b. § 4626Q.12. Such losses shall be treated as capital charges. parent bank or the parent bank’s subsidiary/affiliate.Page 12 subsidiary/affiliate.13 . A cleanup call may be exercised by the seller once the outstanding principal balance of the receivable component of the asset pool falls to ten percent (10%) or less of the original principal balance of the asset pool. of ABS except those administered by its trust department. Surety bond issued by any insurance company other than the originator’s/seller’s subsidiary or affiliate.16 05. If not needed. its parent bank or the parent bank’s subsidiary/affiliate. Otherwise. Overcollateralization provided by the originator/seller wherein the assets conveyed to the SPT exceed the amount of securities to be issued. Subordinated securities that are lower ranking. its parent bank or its parent bank’s subsidiaries/affiliates. the trust department of its parent bank or the trust department of its parent bank’s subsidiaries/affiliates. and trustee or its subsidiary/affiliate. this “spread” generally reverts to the holder of the residual certificate. The guarantor must have the financial capacity to perform its responsibilities in accordance with the terms and conditions of the guarantee agreement. The underwriter may not extend credit for the purpose of purchasing the ABS which such UB/IH underwrites or that which is underwritten by its subsidiaries/ affiliates.14 Guarantor a. f. Standby letter of credit issued by an UB/KB other than the originator’s/seller’s subsidiary/affiliate. the subsidiary or affiliate of the originator’s/ seller’s parent bank and the trustee or its subsidiary/affiliate.15 Credit enhancement Credit enhancement may be provided in any of the following manner: a. The spread account shall be handled by the trustee which shall account for it separately.§§ 4626Q. d. or junior to other obligations and are paid after claims to holders of senior securities are satisfied. the subordinated securities shall be treated as deposit substitute subject to legal reserves. The originator or seller may not issue a counter-guarantee in favor of the guarantor. It shall submit to the trustee at least once in every six (6) months such financial reports as the trustee may require.16 Clean-up call. c. c. Guarantee issued by any entity other than the originator/seller or its Q Regulations Part VI . the trust departments of its subsidiaries/ affiliates. Spread account wherein the income from the underlying pool of receivables is made available to cover any shortfall in the repayment of ABS. capital charges should be booked upfront. d. § 4626Q. § 4626Q. e.4626Q. Other credit enhancements as may be approved by the Monetary Board. such assets shall be included in the clean-up call and the consideration thereof shall be at current Manual of Regulations for Non-Bank Financial Institutions . To be consistent with the concept of a true sale. Only an entity the regular business of which includes the issuance of guarantees or similar undertaking may act as guarantor. Losses arising from overcollateralization shall be recognized by the originator/seller upfront. on a firm basis. b. and trustee or its subsidiary/affiliate.31 of its parent bank or the trust department of its parent bank’s subsidiaries/affiliates. g. A UB/IH may act as underwriter. Such a clean-up call shall not be considered recourse or in violation of Subsec. SUNDRY PROVISIONS Sec. its subsidiaries/affiliates.17 Prohibited activities a. the trust department of its parent bank or the trust department of its parent bank’s subsidiaries/affiliates as trustee. its parent bank or the parent bank’s subsidiaries/ affiliates or vice versa: Provided. Plant and Equipment. § 4626Q. § 4651Q. The trust indenture shall not contain any stipulation whereby the seller. designate its trust department. seller or servicer may not serve as a member of the board of directors or trust committee of the trustee or vice versa for the duration of the securitization. 4626Q. Secs. finally. its parent bank or the parent bank’s subsidiaries/affiliates shall commit to extend any credit facility to the issuer and/or trustee. The following rules shall govern the premises and other fixed assets of QBs. The trust department of a bank that has discretion in the management of any trust or investment management account may not purchase for said trust/investment management account ABS administered by the trust department of the same bank. b.31 market value. its parent or the parent’s subsidiaries/affiliates as servicer or vice versa.§§ 4626Q. further.16 . Any amendment to the trust indenture shall require the prior approval of the BSP. officer or employee of the originator. Any director. c. QB premises. That such entity acting as trustee or servicer is not a subsidiary/ affiliate of the originator/seller. That such entity acting as trustee may not designate its subsidiaries/affiliates. its parent or the parent’s subsidiaries/affiliates as servicer or vice versa. § 4626Q.7 on conveyance of assets. 4627Q . The ABS shall not be eligible as collateral for a loan extended by a QB which originated/sold the underlying assets of such ABS. § 4626Q.4651Q. fixtures and equipment shall be accounted for using the cost model under PAS 16 “Property.1 Appreciation or increase in book value. any entity supervised by the BSP authorized to engage in trust and fiduciary business may act as trustee or servicer in a securitization scheme originated by an entity not supervised by the BSP: Provided. 4651Q Quasi-Bank Premises and Other Fixed Assets.20 Report to Bangko Sentral The trustee shall submit a report of every securitization scheme in formats to be prescribed by the BSP. The seller may not.4650Q (Reserved) B. d. the trust department of such trustee’s subsidiaries/affiliates. The trustee may not designate its subsidiary/affiliate.12. That the assets which are the subject of such securitization are existing in the books of the entity prior to securitization: Provided. furniture.19 Miscellaneous provision Without prior approval of the BSP.” Outstanding appraisal increment as of 13 October 2005 arising from mergers and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI .1 06.Page 13 . Such report shall be considered a Category A report for purposes of implementing fines in the submission of required reports pursuant to existing regulations. The report shall be submitted to the appropriate department of the SES. § 4626Q. the trust department of its subsidiaries/affiliates. e. within fifteen (15) business days after the end of every reference quarter. under any circumstance. the trust department of such trustee’s parent bank and the trust department of the parent bank’s subsidiaries/affiliates.18 Amendment. justification and plans for expansion/use.Land/ Building. §§ 4651Q.3 Reclassification of real and other properties owned or acquired as quasi-bank premises. Accordingly. educational institutions. repair or Q Regulations Part VI . net of any valuation reserve: Provided. airports. institutions. 2001 and 2002 respectively. shopping centers or establishments. sports and recreation centers and complexes.2 (Reserved) § 4651Q. no license or permit for the construction.12. That only such acquired asset or a portion thereof that will be immediately used or earmarked for future use may be reclassified and booked as Real Property. the booking of appreciation or increase in the book value of QB premises and other fixed assets in cases where the market value of the property has greatly increased since the original purchase is no longer allowed. QBs.4 . including the BSP and banks abroad) plus Trust Department accounts. prior to the reclassification of their ROPA accounts to Real Property. (As amended by Circular No. Institutions. shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building. such architectural facilities or structural features as shall reasonably enhance the mobility of disabled persons such as sidewalks. in case of future use. For purposes of computing the annual fees chargeable against QBs.31 consolidation and other cases approved by the Monetary Board. or public utilities may be renovated or altered to enable the disabled persons to have access to them. Manual of Regulations for Non-Bank Financial Institutions . shall first secure prior BSP approval before effecting the reclassification and shall submit.1 . 7653 (end-of-quarter total assets per balance sheet. establishment or public utility. 2001 and 2002 shall be one twenty-eighth (1/28) of one percent (1%) multiplied by their AAAs for 2000. 344 – An Act to Enhance the Mobility of Disabled Persons by Requiring Certain Buildings. appraisal increment previously allowed to be booked shall be reversed.8 (Reserved) § 4651Q.4651Q.Page 14 renovation of public and private buildings for public use.9 Batas Pambansa Blg. workplaces.Building shall be booked at their ROPA balance.A.§§ 4651Q. all such existing buildings. 520 dated 20 March 2006) § 4651Q. public utilities.4652Q 06. Annual fees to be collected from QBs shall be debited from their respective deposits with the BSP by the BSP Comptrollership Department upon receipt of the notice of the assessment from the appropriate department of the SES. establishments. 4652Q Annual Fees on Quasi-Banks QBs shall contribute to the BSP an annual fee to help defray the cost of maintaining the appropriate department of the SES. If feasible. the term Total Assessable Assets shall be the amount referred to as the total assets under Section 28 of R. shall be deemed part of the cost of the assets.Land/Building. Establishments and Public Utilities to Install Facilities and Other Devices. Average Assessable Assets shall be the summation of end-of-quarter total assessable assets divided by the number of quarters in operation during the particular assessment period. after deducting cash on hand and amounts due from banks. railings and the like. ramps. In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they live and the enjoyment of the opportunities available to other citizens. However. ROPA reclassified either as Real Property-Land or Real Property. No. public parking places. Sec. The annual fees for QBs for the assessable years 2000. §§ 4652Q . Monetary Board directives. the BSP shall bill the quasi-bank for the full amount of the annual fee or for the balance thereof not covered by its deposit account. (4) Transactional penalty refers to a one (1)-time penalty imposed on a transactional offense/violation. BSP rules and regulations. Appeal or request for reconsideration. For this purpose the terms “per banking day”. The following regulations shall govern the payment of fines and other charges by quasi-banks. Late payment of monetary penalty shall be subject to an additional charge of six percent (6%) per annum to be computed from the time said penalty becomes due and payable up to the time of actual payment. penalties which remain unpaid after the lapse of the fifteen-day period shall be automatically debited against their corresponding DDA on the following business day without additional charge. omissions or transactions entered into in violation of laws. in violation of laws. Within thirty (30) calendar days from receipt of the bill. “per business day”. b. the following definitions are adopted: (1) Continuing offenses/ violations are acts. and orders of the Governor which persist from the time the particular acts were committed or omitted or the transactions were entered into until the same were corrected/rectified by subsequent acts or transactions. The following are the guidelines on the imposition of monetary penalties on QBs.1 07. They shall be penalized on a per calendar day basis from the time the acts were committed/omitted or the transactions were effected up to the time they were corrected/rectified. If the balance of the concerned QB’s DDA is insufficient to cover the amount of the penalty. “per day” and/ or “a day” as used in the Manual. Failure to pay the bill within the prescribed period shall subject the quasibank to administrative sanctions.1 Guidelines on the imposition of monetary penalties. 4653Q Payment of Fines and Other Charges. The computation of the period or duration of all penalties shall be based on calendar days. their directors and/or officers. Sec.31 Where the deposit account is insufficient to cover the assessment fee. and orders of the Governor which cannot be corrected/rectified by subsequent acts or transactions. They shall be meted with one-time monetary penalty on a per transaction basis. § 4653Q. said penalty shall already be subject to an additional charge of six percent (6%) per annum to be reckoned from the business day immediately following the end of said fifteen (15)-day period up to the day of actual payment. For QBs which maintain DDA with the BSP. as the case may be. d. the quasi-bank shall make the corresponding remittance to the BSP. Additional charge for late payment of monetary penalty. The penalty shall become due and payable fifteen (15) calendar days from receipt of the Statement of Account from the BSP. Definition of terms. c. A one (1)-time appeal or request for reconsideration on the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . omissions or transactions entered into.Page 15 . BSP rules and regulations. (2) Transactional offenses/violations are acts. For purposes of the imposition of monetary penalties. Basis for the computation of the period or duration of penalty.4653Q. (3) Continuing penalty refers to the monetary penalty imposed on continuing offenses/violations on a per calendar day basis reckoned from the time the offense/ violation occurred or was committed until the same was corrected/rectified.12. a. and other BSP rules and regulations shall mean “per calendar day” and/or “calendar day” as the case may be. Monetary Board directives. such Q Regulations Part VI . fines which are unpaid after the lapse of the fifteen (15)-day period shall be automatically debited against the corresponding demand deposit account of the quasi-bank concerned: Provided. payable either to the Cash Department. or any order. 585 dated 15 October 2007) § 4653Q. The running of the penalty period in case of continuing penalty and/or the period for computing additional charge shall be interrupted from the time the appeal or request for reconsideration was received by the appropriate department of the SES up to the time that the notice of the Monetary Board decision was received by the QB/ individual concerned. Check payments shall be value-dated when the check is cleared.31 monetary penalty approved by the Governor/Monetary Board to be imposed on the QB. 585 dated 15 October 2007) fines shall be paid not later than the following business day. fines or penalties and collections or repayments of notes used as collateral for loans.3 Check/demand draft payments to the Bangko Sentral. and conduct periodic or special examinations of quasi-banks. The head and examiners of the appropriate department of the SES ar e a uthorized to administer oaths to any director. Quasibanks shall. (As amended by Circular No.12. any law or any order. documents.1 . instruction or ruling by the Governor.. Such payments shall be accompanied by the appropriate form as shown in Appendix Q-22. pay the fines for reserve deficiency. Mabini St. (As amended by Circular No. reportorial delay/ deficiency. and to compel the presentation of all books. Payments not accompanied by the required payment forms shall be presumed to be additions to reserves and shall be credited to the demand deposit account of the paying quasi-bank. Quasibanks shall make all check and demand draft payments for legal reserve. or violation of. For quasi-bank s which maintain demand deposit accounts with the BSP. 4654Q Examination by the Bangko Sentral.2 Payment of fines. inclu ding their subsidiaries and affiliates engaged in allied activities. The BSP shall have supervision over. For the purpose of this Section. The appropriate department of the SES shall evaluate the appeal or request for reconsideration of the QB/individual and make recommendations thereon within thirty (30) calendar days from receipt thereof. 585 dated 15 October 2007) § 4653Q.§§ 4653Q. papers or records necessary in their judgment to ascertain the facts relative to the true condition of the institution as well as the books and records of persons and entities relative to or in connection with Manual of Regulations for Non-Bank Financial Institutions . Malate. instruction or regulation issued by the Monetary Board. Bangko Sentral ng Pilipinas. The appeal or request for reconsideration on the monetary penalty approved by the Governor/Monetary Board shall be elevated to the Monetary Board for resolution/decision. its directors and/or officers shall be allowed: Provided. That the same is filed with the appropriate department of the SES within fifteen (15) calendar days from receipt of the Statement of Account/billing letter. business day means a day on which the BSP head office and the head office of the quasi-bank are open for business. That if the balance of the entity's account is insufficient to cover the fines due. including their subsidiaries and affiliates in allied activities. supervisory fees. or employee of quasibanks. refusal to permit examination.Page 16 Sec. or failure to comply with. officer. Manila or directly to the BSP Regional Cash Units. (As amended by Circular No.4654Q 07. within fifteen (15) calendar days from receipt of the statement of account from the BSP. or vice-versa.A.4656Q 07. known as The Investment Houses Law. storage companies. natural or juridical. § 4654Q. control or power to vote. or held with power to vote by a quasi-bank. leasing companies. but not limited to. the rules governing banks with universal banking authority shall prevail. as amended. financial institutions addressed/catering to small and medium scale industries. and such other similar activities as the Monetary Board may declare as appropriate from time to time.§§ 4654Q . promulgated basic rules and regulations (Appendix Q-18) to implement the provisions of the Decree. but not limited to. financing companies.1 Definitions a. b.D. No. known as The Financing Company Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . companies engaged in home building and home development and companies providing drying and/or including facilities for agricultural crops such as rice and corn and such other similar activities as the Monetary Board may declare as appropriate from time to time. governs the establishment. P. 129. Sec. b. Affiliate is an entity linked directly or indirectly to a quasi-bank by means of: (1) Ownership. (2) Interlocking directorship or officership. of ten percent (10%) or more of the outstanding voting stock of the entity. in debt instruments issued by the Government. No. activities or transactions of the institution under examination. R. (3) Common stockholders owning ten percent (10%) or more of the outstanding voting stock of each of the financial intermediary and the entity. Subsidiary is a corporation more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. (4) Management contract or any arrangement granting power to the financial intermediary to direct or cause the direction of management and policies of the entity. pursuant to the powers vested in it by said Decree. 8556. operation and regulation of IHs. Financing companies. companies engaged in the management of mutual funds but not in the mutual funds themselves.12. 4656Q Basic Laws Governing Investment Houses and Financing Companies. subject to the provision of existing laws protecting or safeguarding the secrecy or confidentiality of investments of private persons. Investment houses. c. or vice-versa. In case of conflict between rules applicable to banks with universal banking authority and those applicable to quasi-bank s in activities where they perform the same functions. controlled. 4655Q Applicability of Rules Governing Universal Banks to QuasiBanks. Financial allied undertakings refer to enterprises or firms with homogeneous or similar activities/ business/functions with the financial intermediary and may include. banks. d. or vice-versa. management corporations engaged or to be engaged in activities similar to the management of mutual funds. Sec. Non-financial allied undertakings may include. safe deposit box companies.Page 16a . credit card operations. insurance agencies. the SEC . warehousing companies. IHs. or (5) Permanent proxy or voting trust in favor of the financial intermediary constituting ten percent (10%) or more of the outstanding voting stock of the entity.31 the operations. To effectively carry out the provisions of this Decree. The following are the basic laws governing IHs and financing companies: a. 12. regulates the organization and operation of financing companies. 4657Q Recognition and Derecognition of Domestic Credit Rating Agencies for Quasi-Bank Supervisory Purposes. (Next Page is Part VI-Page 17) Q Regulations Part VI .§§ 4656Q . pursuant to the powers vested in it under said Act.Page 16b Manual of Regulations for Non-Bank Financial Institutions . promulgated basic rules and regulations to implement the provisions of the Act (Appendix Q-19). To effectively carry out the provisions of this Act. The following regulations shall govern the recognition and derecognition of domestic credit rating agencies (CRAs) for quasi-bank supervisory purposes. Sec.4657Q 05. the SEC.31 Act of 1998. 4657Q.12. As a matter of policy. (b) The size of the CRA’s professional analytical staff must be sufficient to allow substantial on-going contact with senior management and operational levels of assessed/rated entities as a routine component of the surveillance process.Page 17 . Only ratings issued by CRAs recognized by the BSP shall be considered for BSP quasi-bank supervisory purposes. d. In the case of new entrants. Objectivity (1) The CRA must use a rigorous and systematic assessment methodology that has been established for at least one (1) year. Resources (1) Human Resources (a) The size and quality of the CRA’s professional analytical staff must have the capability to thoroughly and competently evaluate the assessed/rated entity’s creditworthiness. the BSP wants to ensure that the reliance on credit ratings is not misplaced. b. and (f) The directors. § 4657Q. and (2) A domestic CRA must have at least five (5) years track record in the issuance of reliable and credible ratings. Independence (1) The CRA must be free from control of and undue influence by the entities it assesses/rates. Organizational structure (1) A domestic CRA must be a duly registered company under the Securities and Exchange Commission (SEC). (2) The assessment methodology of the CRA must be based both on qualitative and quantitative approaches. c. members of the rating committee and professional analytical staff of the CRA have not at any time been convicted of any offense involving moral turpitude or violation of the Securities Regulation Code. (d) The directors of the CRA must possess a high degree of competency equipped with the appropriate education and relevant experience in the rating business. officers.§§ 4657Q. members of the rating committee and professional analytical staff of the CRA are not currently involved as a defendant in any litigation connected with violations of the Securities Regulation Code nor included in the BSP watchlist. may officially recognize a credit rating agency upon satisfaction of the following requirements: a. That the CRA employs professional analytical staff with experience in the credit rating business. The following rules and regulations that shall govern the recognition/derecognition of domestic CRAs for quasi-bank supervisory purposes. (c) The CRA shall establish a Rating Committee composed of adequately qualified and knowledgeable individuals in the rating business. and (3) The CRA must use an assessment methodology that is subject to on-going review and is responsive to changes in the operations of assessed/rated entities. officers. a three (3)-year period is preferable. and (b) The CRA must have financial independence that will allow it to operate free from economic and political pressures.31 § 4657Q. a probationary status may be granted: Provided. (e) The directors. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI .1 .2 05. (2) Financial resources (a) The CRA must have the financial capability to invest in the necessary technological infrastructure to ensure speedy acquisition and processing of data/ information and timely release of reliable and credible ratings. however. The BSP. The introduction in the financial market of new and innovative products create increasing demand for and reliance on CRAs by the industry players and regulators as well. majority of whom must have at least five (5) years experience in credit rating business.1 Statement of policy.2 Minimum eligibility criteria. through the Monetary Board. (2) The CRA is generally accepted by predominant users in the market (i. Control may also exist even when ownership is one-half or less of the voting power of an enterprise when there is: (a) power over more than one-half (½) of the voting rights by virtue of an agreement with other stockholders. changes in management or organizational structure.e. investors.e. all assigned ratings disclosing whether the rating issued is solicited or unsolicited. (c) Material changes within the CRA (i. For purposes of this Section. Manual of Regulations for Non-Bank Financial Institutions . a subsidiary refers to a corporation. and (b) Rating transitions of assessed/ rated entities over time (i. (4) The ratings issued by the CRA should be available both to domestic and foreign institutions with legitimate interest. or (e) any other arrangement similar to any of the above. (b) Definition of what constitutes a default. and (4) The CRA does not assess/rate an associate entity.2 05. Disclosure requirements (1) Qualitative disclosures (a) Definition of ratings along with corresponding symbols. (2) Quantitative disclosures (a) Actual default rates experienced in each rating category. financial institutions. financial deterioration) that may affect its ability to provide reliable and credible ratings. modifications of rating practices. (3) Persons directly involved in the assessment process of the CRA are free from conflicts of interest with assessed/rated entities. securities traders). (3) The rationale of ratings issued and risk factors considered in the assessment should be made available to the public.Page 18 g.§ 4657Q. (c) power to appoint or remove the majority of the members of the board of directors or equivalent governing body. f.e. time horizon within which a default is considered and measure of loss given a default.. it can be clearly demonstrated that such ownership does not constitute control. more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly by the CRA while an affiliate refers to a corporation.. bankers. Credibility (1) The CRA must have a general reputation of high standards of integrity and fairness in dealing with its clients and conducts its business in an ethical manner. (d) power to cast the majority votes at meetings of the board of directors or equivalent governing body. issuers.12. in exceptional circumstance. Q Regulations Part VI . likelihood of an AAA credit rating transiting to AA etc. rating personnel. Control exists when the parent owns directly or indirectly through subsidiaries more than one-half of the voting power of an enterprise unless. over time). not more than fifty percent (50%) but not less than ten percent (10%) of the voting stock of which is owned or controlled directly or indirectly by the CRA. and (5) Publication of changes in ratings together with the basis for the change should be done on a timely basis. (2) The CRA shall disseminate to the public thru a well-circularized publication.. (b) power to govern the financial and operating policies of the enterprise under a statute or an agreement. Transparency (1) A general statement of the assessment methodology used by the CRA should be publicly available. e. and (3) The CRA must carry out its rating activities with due diligence to ensure ratings are fair and appropriate.31 (2) The assessment process must be free from ownership pressures to allow management to exercise independent professional judgement. §§ 4657Q. and (2) That the CRA shall notify the BSP in writing of any material changes within the organization (i. An undertaking (1) That the CRA shall comply with regulations. officers.5 Derecognition of credit rating agencies a.. The application of a domestic CRA for BSP recognition shall be submitted to the appropriate department of the SES together with the following information/documents: a. divulging any confidential information about a client without prior consent to a third party without legitimate interest. if any. changes in management or organizational structure. 4657Q.e. modifications of its rating practices. § 4657Q. members of the rating committee and professional analytical staff of the CRA. etc.Page 19 .2 . luring clients of another rating agency by assuring higher ratings. § 4657Q.31 h. 4657Q. Internal compliance procedures (1) The CRA must have the necessary internal procedures to prevent misuse or unauthorized disclosure of confidential/ non-public information. stockholders.12.3. members of the rating committee and professional analytical staff. indulging in unfair competition (i. etc. and (8) Details of all settled and pending litigations connected with the securities market against the CRA. directorship and shareholdings in the CRA and in other companies. employment of professional analytical staff with experience in the credit rating business. rating personnel.. The BSP.). financial deterioration) that may affect its ability to provide reliable and credible ratings. The BSP will regularly circularize to all banks and NBFIs an updated list of recognized CRAs.e. Other documents/information: (1) Brief history of the CRA. and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . officers.5 05. creation of a false market or insider trading. its directors. (2) Audited financial statements for the past three (3) years and such other information as the Monetary Board may consider necessary for selection purposes. (2) Involvement in illegal activities such as ratings blackmail.4 Inclusion in BSP list.4657Q. and (2) The CRA must have rules and regulations that prevent insider trading and other conflict of interest situations. Grounds for derecognition. if any. major rating activities handled including information on the name of the client. if any (i. size and year of issue. CRAs may be derecognized from the list of BSP recognized CRAs under the following circumstances: (1) Failure to maintain compliance with the requirements under Subsec. (3) For new entrants. shall not be liable for any damage or loss that may arise from its recognition of CRAs to be engaged by users. including their qualifications.). experience related to rating activities. (6) List of subsidiaries and affiliates including their line of business and the nature of interest of the CRA in these companies.3 Pre-qualification requirements. (7) Details of the denial of a previous request for recognition. date of denial.e.. (5) List of directors. type of instruments rated. reason for denial. b. (4) List of major stockholders/partners [owning at least ten percent (10%) of the voting stocks of the CRA directly or along with relatives within the 1st degree of consanguinity or affinity].2 or any willful misrepresentation in the information/documents required under Subsec. § 4657Q. application date. directives and instructions which the BSP or other regulatory agency/ body may issue from time to time. however. e. b.g. Sec. Exchange rate differential/spread –foreign exchange mark-up or the difference between the prevailing BSP reference/guiding rate and the exchange/ conversion rate.31 (3) Any violation of applicable laws. providing overseas remittance services shall disclose to the remittance sender and to the recipient/beneficiary. c. as defined herein: a. consistent with sound practices. postage. Accordingly. is hereby recognized by the BSP for bank supervisory purposes. strengthening the financial infrastructure. rules and regulations. deepening the financial literacy of consumers. Internationally accepted CRAs are recognized for bank supervisory purposes to undertake local and national ratings: Provided.6 Recognition of FITCH SINGAPORE PTE LTD as international credit rating agency for bank supervisory purposes.g. among others. § 4657Q. d. the following minimum items of information regarding remittance transactions.12. 4660Q Disclosure of Remittance Charges and Other Relevant Information It is the policy of the BSP to promote the efficient delivery of competitively-priced remittance services by banks and other remittance service providers by promoting competition and the use of innovative payment systems. That said CRAs shall have at least a representative office in the Philippines.1 – 4659Q. may be used. among others. Secs. Exchange rate – rate of conversion from foreign currency to local currency. 4658Q (Reserved) Sec. a BSP-recognized international CRA with representative office in the Philippines. surcharges. Towards this end. f. 4659Q Internationally Accepted Credit Rating Agencies. §§ 4659Q. national or domestic credit ratings assigned by FITCH SINGAPORE PTE LTD. b.. Other related charges – e. Credit ratings assigned by Philippine Rating Services Corporation (PhilRatings) may be used. among others. if any. credit ratings assigned by said CRAs may be used. Accordingly. Amount/currency paid out in the recipient country .6 Recognition of PhilRatings as domestic credit rating agency for bank supervisory purposes.5 (Reserved) § 4659Q. including FXDs/MCs and RAs. Other currency conversion chargescommissions or service fees. enhancing access to formal remittance channels in the source and destination countries.§§ 4657Q. Procedure for derecognition. The national or domestic credit ratings of FITCH SINGAPORE PTE LTD.. and improving transparency in remittance transactions. NBFIs under BSP supervision. text message or telegram. as basis for Q Regulations Part VI . A CRA shall only be derecognized upon prior notice and after being given the opportunity to defend itself.5 . e. as basis for determining appropriate risk weights in ascertaining compliance with existing rules and regulations on risk-based capital requirements. Transfer/remittance fee – charge for processing/sending the remittance from the country of origin to the country of destination and/or charge for receiving the remittance at the country of destination..Page 20 determining appropriate risk weights in ascertaining compliance with existing rules and regulations on risk-based capital requirements.exact amount of money Manual of Regulations for Non-Bank Financial Institutions . for determining appropriate risk weights in ascertaining compliance with existing rules and regulations on riskbased capital requirements. peso-dollar rate.4660Q 06. QBs. or any investigation/s that is limited in scope.4691Q. conducted to inquire into a particular area/aspect of an institution’s operations. enforcing prompt corrective action. the following: a. henceforth. (Circular No. 534 dated 26 June 2006) Sec. examination by the BSP of institutions shall be complemented by overseeing thereof. Determination of the QB’s solvency and liquidity position. 612 dated 13 June 2008. trust entities. otherwise known as the “Anti-Money Laundering Act of 2001” and its Revised Implementing Rules and Regulations (IRRs) in Appendix Q-25 and those in Appendix Q-23. NSSLAs. Assessment of risk management system. and g. Non-bank remittance service providers shall likewise post said information in their respective websites and display them prominently in conspicuous places within their premises and/or remittance/service centers.31 the recipient should receive in local currency or foreign currency. and all other institutions.§§ 4660Q . the term overseeing shall refer to a limited investigation of an institution. including their subsidiaries and affiliates supervised and/or regulated by the BSP. 564 dated 03 April 2007) §§ 4691Q. Secs. including the evaluation of the effectiveness of the QB management’s oversight functions.4690Q (Reserved) Sec. OBUs. as amended. Delivery time to recipients/ beneficiaries . Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans and other risk assets. SES.9 Sanctions and penalties a. No. 4662Q . It shall include determination that the institution is conducting its business on a safe and sound basis. or at a shorter interval.8 (Reserved) § 4691Q. In this regard. and (ii) periodic summary reports on overseeings made be submitted to the Monetary Board. Regular or periodic examination shall be done once a year.delivery period of remittance to beneficiary stated in number of days. Any other activities relevant to the above. but need not be limited to. when authorized by the Monetary Board by an affirmative vote of five (5) members. rules and regulations. hours or minutes. That (i) specific authorizations be issued by the Deputy Governor. otherwise known as “covered institutions” shall comply with the provisions of R. Special examination may be conducted earlier. Review of all aspects of QB operations. In the full exercise of the supervisory powers of the BSP. b.1 . refer to an investigation of an institution under the supervisory authority of the BSP to determine compliance with laws and regulations. Review of compliance with applicable laws. c.4691Q.12. (As amended by Circular Nos. Whenever a covered institution violates the provisions of Section 9 of Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . Examination requires full and comprehensive looking into the operations and books of institutions. f.Page 21 . 4661Q Examination by the BSP. 4691Q Anti-Money Laundering Regulations. The term “examination” shall. inquiring into the solvency and liquidity of the institution. Banks. and shall include. Appraisal of overall management of the QB. 9160. procedures.A. with an interval of twelve (12) months from the last date thereof. policies. or such other matters requiring immediate investigation: Provided. d.9 08. e. and g. pawnshops. internal control and audit. for the purpose of overseeing that laws and regulations are complied with. 4695Q 08.A. SEC or IC. the Monetary Board may. may be allowed to present the original and submit a clear copy of one (1) valid photo-bearing school ID duly signed by the principal or head of the school. The foregoing shall be in addition to the customer identification requirements under Rule 9.A. Secs.31 R. For this purpose. 9160. and (t) Company IDs issued by private entities or institutions registered with or supervised or regulated either by the BSP. Students who are beneficiaries of remittances/fund transfers and who are not yet of voting age. and Q Regulations Part VI . AFP. the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50.000 nor more than P200.c of the Revised IRRs of R. in order to promote access of Filipinos to services offered by formal FIs. 4695Q Valid Identification (ID) Cards for Financial Transactions.g. the term official authority shall refer to any of the following: (1) Government of the Republic of the Philippines.9 . at its discretion.A. They shall require their clients to submit an updated photo and other relevant information whenever the need for it arises. its directors and/or officers for any violation of Section 9 of R.12. No. QBs shall require their clients to submit a clear copy of the one (1) valid ID on a one-time basis only. c. or of this Section. No. (e. at the discretion of the court pursuant to Section 36 of R. b. Valid IDs include the following: (a) Passport (b) Driver’s license (c) PRC ID (d) NBI clearance (e) Police clearance (f) Postal ID (g) Voter’s ID (h) Barangay certification (i) GSIS e-Card (j) SSS card (k) Senior Citizen card (l) OWWA ID (m) OFW ID (n) Seaman’s Book (o) Alien Certification of Registration/ Immigrant Certificate of Registration (p) Government office and GOCC ID. No. as amended.A. (3) GOCCs. 9160. Manual of Regulations for Non-Bank Financial Institutions . The following guidelines govern the acceptance of valid ID cards for all types of financial transactions by QBs. particularly those residing in the remote areas. 4692Q . b. or at the commencement of a business relationship. including financial transactions involving overseas Filipino workers (OFWs). HDMF IDs) (q) Certification from the NCWDP (r) DSWD certification (s) IBP ID. impose upon any covered institution. as amended. 9160.1. the administrative sanctions provided under Section 37 of R. Without prejudice to the criminal sanctions prescribed above against the culpable persons.§§ 4691Q. as amended (Appendix Q-25). as well as to encourage and facilitate remittances of OFWs through the banking system: a.4694Q (Reserved) Sec. 7653.000 or by imprisonment of not less than two (2) years nor more than ten (10) years.A. Clients who engage in a financial transaction with covered institutions for the first time shall be required to present the original and submit a clear copy of at least one (1) valid photo-bearing ID document issued by an official authority. or both. No..Page 22 (4) Private entities or institutions registered with or supervised or regulated either by the BSP or SEC or IC. 7653. (2) Its political subdivisions and instrumentalities. No. any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.4699Q 08.Page 23 .A. No. 4699Q General Provision on Sanctions Unless otherwise provided. a financial transaction is any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto.§§ 4695Q .4698Q (Reserved) Sec.12. among others. Under the Anti-Money Laundering Act of 2001. No.31 For purposes of this Section. It also includes any movement of funds by any means with a covered institution. 7653 on QBs. 564 dated 03 April 2007 as amended by Circular No. financial transactions may include remittances. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Part VI . The guidelines for the imposition of monetary penalty for violations/offenses with sanctions falling under Section 37 of R. (Circular No. their directors and/or officers are shown in Appendix Q-39. as amended.A. 7653. 4696Q . as falling under the definition of transaction. 608 dated 20 May 2008) Secs. Foreign equity.A PP. These shall show in details the various stages leading to the completion of an agreement. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-1 . (c) Fund usage. etc. Q-1 05. Promotion of Public Interest and Economic Growth (1) Submission of a one (1)-year investment program indicating: (a) Underwriting and distribution activities. (b) Fund mobilization.Majority (51%) of the voting stock shall be owned by Filipinos. Target dates for each stage in the underwriting process shall be indicated which should serve as reference points in the event that an investment house is unable to bring the program and its components to fruition. (2) The one (1)-year investment program of the investment house shall be related to the government development plan by indicating the portion of the investment and savings targets in the plan which would be supported by the investment house industry. counseling. Other activities as financial management. (5) A statement justifying the operation of the investment house as not in conflict with public interest and economic growth. indicating: (a) record of underwriting. b.0 million for an investment house to be established in Metro Manila and P100.The requirement is a minimum paid-in capital of P200.Page 1 .31 GUIDELINES TO EVALUATE INVESTMENT HOUSES (Appendix to Sec. Support of priority investment areas of the Government and other projects which may be determined by the BSP shall be emphasized. shall be considered. (c) evidence of obtaining funds with maturity beyond one (1) year. d.. Resident foreign directors and technicians shall register with the Bureau of Immigration and Deportation. Funds placed on maturities beyond one (1) year shall be preferred. Domestic and foreign sources shall be indicated and the latter shall be evaluated in terms of pertinent BSP regulations. distribution of equity and debentures for "public" ownership. c. and (d) equity investments which were subsequently distributed to the public. 4105Q) a. Citizenship . taking into account the existing number of investment houses. Directorship/Officership .12. (4) Operational agreement with other financial institutions. Emphasis shall be on maturities beyond one (1) year. shall be subordinated to the preferred activities above-indicated. Capital .0 million for all others. Compliance with the prohibition on interlocking directorship/officership between banks and investment houses and between quasibanks shall be observed. if any. while necessary to sustain the investment house. (3) A one (1)-year projected income statement showing major sources of income and expense items. Target volume of underwriting would be set initially at twenty-five percent (25%) of paid-in capital. (b) evidence of medium and longterm loans. (d) Planned distribution of portfolio Activities indicating money-market services and investment in subsidiaries and affiliates. shall be registered with and approved by the Board of Investments and the BSP.Majority of the board members shall be Filipinos. board of directors and the managerial staff. and (2) Profitability and capacity to absorb losses.31 e. Other factors to be considered are the following: (1) Reserve and liquidity position. Manual of Regulations for Non-Bank Financial Institutions . (2) Experience along financial management. Direction and Administration . Q-1 05. Organization.12.The rate at which branch offices are to be established shall depend upon the ability of the company to conduct operations from headquarters/ head offices as well as on correspondent (banking) arrangements. academic or others. must be firmly designated before it can be granted a license to operate as an investment house. and (4) Affiliation with professional organizations.The organizational/ functional chart should match the organization framework with operational objectives. Integrity.A PP. Experience and Expertise of Board and Management Staff (1) Formal training. securities dealing. Branching . project evaluation and feasibility studies. g. fund management.Page 2 (3) Absence of administrative or criminal conviction. The management of the company. Q Regulations Appendix Q-1 . f. 4151Q. b. Estimated Amount of Risk Assets of Present Office for the Next 12 Months a.(Base Period) Risk Assets . Maximum Possible Level of Risk Assets Based on the Base Period Figures: a.31 DETERMINATION OF AMOUNT OF ADDITIONAL CAPITAL THE ENTITY MUST PUT UP (PROJECTION BASE . B. c. Branch Being Applied for: xxx Add: Lower of A. c.Page 1 . Branch Approved but not yet Opened: P xxx 2. Net worth Less 30% of Paid-in Capital (Pxxx . Actual Risk Assets Add: xx% of (a) Risk Assets .2) (Name of Entity) A. Total Estimated Risk Assets for 12 Months P xxx D.1 or A. 10% of C (Minimum Paid-in Capital Required) P xxx Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-2 .(Previous Year) Increase Rate of Increase = increase = xx% actual risk assets Total of (a) and (b) P xxx xxx P xxx P xxx P xxx xxx P xxx 2.xxx) 100% of Borrowings (Bills Payable) 80% of Unutilized Acceptances or Credit Line with Foreign Bank(s) P xxx xxx xxx Estimated Risk Assets for the First 12 Months of Operation: 1.APP. Q-2 05.12. b.2 xxx C. 1.LATEST AVAILABLE REPORT) (in thousand pesos) (Appendix to Subsec. then computations should consider only the amount of net profits (after dividends) plowed into the business for the year immediately preceding the date of application plus the amount of capital that the NBQB promised to put up per its schedule or program submitted to the Bangko Sentral.31 E. If no evidence is found that the NBQB will continue to increase its capital accounts for the same amount for the succeeding year. Less: Present Combined Capital Accounts (Base Period Figures) Add: xx% of above P xxx Capital Accounts . as the case may be P xxx *The computation to arrive at the "rate of increase" in capital accounts shall only be considered if there is sufficient indication or evidence that the NBQB will continue to follow the same amount of increase in capital accounts for the succeeding year.APP. If no such schedule or program was submitted. Q-2 05.Page 2 Manual of Regulations for Non-Bank Financial Institutions . Q Regulations Appendix Q-2 . xxx xxx Increase = xx% Capital Accounts of Previous Year Estimated Excess of Capital over Minimum Capital Required or Additional Amount of Capital Applicant Must Put Up. then only the amount of net profits (after dividends) for the year immediately preceding the date of application should be considered.(Previous Year) P xxx xxx Increase P xxx *Rate of Increase = F.12.(Base Period) Capital Accounts . 10.15th business day after end of reference quarter -30th business day after end of reference quarter solo basis (Head Office and branches) Computation of the Risk-Based Capital Adequacy ratio Covering credit Risks Submission Procedure Original copy to CPCD/ISD Quarterly . Unnumbered 4116Q (Cir. Q-3 08.15th business day after end of reference quarter -30th business day after end of reference quarter Appropriate department of the SES . 574 dated 07. 4162Q) Category A-1 Form No.solo basis (Head Office and branches) .9 Acknowledgment receipt of copies of specific duties and responsibilities of the board of directors and of a director and certification that they fully understand the same Annual or as directors are elected 30th business day after date of election Appropriate department of the SES For QBs which are subsidiaries of UBs and KBs APP. Market Risk and Operational Risk1 - Frequency .consolidated basis (Parent QB plus subsidiary financial allied undertakings but excluding insurance companies) A-2 Submission Deadline Quarterly .31 Q Regulations Appendix Q-3 . MOR Ref.07) Report Title Computation of the Adjusted Risk-Based Capital Adequacy Ratio Covering Combined Credit Risk.12.Manual of Regulations for Non-Bank Financial Institutions LIST OF REPORTS REQUIRED FROM QUASI-BANKS (Appendix to Sec.consolidated basis (Parent QB plus subsidiary financial allied undertakings but excluding insurance companies) A-1 1 Unnumbered (no prescribed form) Copy of Published Statement of Condition with Publisher's Certificate Quarterly 5th business day from publication date Original .Page 1 A-2 4181Q .Appropriate department of the SES 4141Q. Q-3 08. Trading Account Securities Investments. and a Consolidated Report for Head Office and Branches. Available for Sale Securities and Investments in Bonds & Other Debt Instruments A-2 BSP-7-26-02-B Schedule 2 (For FCs) 4162Q Trading Account Securities Investments. BSP-7-26-02-A/B MOR Ref.31 Q Regulations Appendix Q-3 . 4162Q Report Title Consolidated Statement of Condition Schedules: Manual of Regulations for Non-Bank Financial Institutions A-2 BSP-7-26-02-A Schedule 1 (IHs only) 4162Q Loans/Receivables. to be submitted via electronic mail to SDC APP.Loans A-2 BSP-7-26-02-A Schedule 5 (For IHs) 4162Q Bills Payable and Bonds Payable A-2 BSP 7-26-02-B Schedule 5 (For FCs) 4162Q Bills Payable and Bonds Payable A-2 BSP-7-26-02-A/B Schedule 4 4162Q Remaining Maturities of Selected Accounts Interest Rate and Maturity Matching A-2 BSP-7-26-02-A/B Schedule 3 4162Q Interest Rate and Maturity Matching A-2 BSP-7-26-02-A Schedule 2 (For IHs) 4162Q Underwritten Securities. Trading Account Securities (TAS) .Loans Underwritten Debt Securities A-2 BSP-7-26-02-B Schedule 1 (FCs only) 4162Q Loans/Receivables and Trading Account Securities (TAS) .Page 2 Category .12.A-2 Form No. Available for Sale Securities and Investments in Bonds & Other Debt Instruments Frequency Submission Deadline Monthly 15th business day after end of reference month Submission Procedure Separate report for Head Office and each Branch. SDC Fax to SDC APP.Local Government Units) A-2 BSP-7-26-02-B Schedule 2. Trading Account Securities .1 (For FCs) 4162Q Trading Account Securities .1 (For IHs) 4162Q Loans/Receivables. Available for Sale Securities and Investments in Bonds & Other Debt Instruments (Government Issue . Q-3 08.12.31 Q Regulations Appendix Q-3 . MOR Ref.06.1 (For FCs) 4162Q Loans/Receivables and Trading Account Securities Loans (Borrowing of Local Government Units) A-2 BSP-7-26-02-A Schedule 1. Report Title BSP-7-26-02-A Schedule 2.Manual of Regulations for Non-Bank Financial Institutions Category Form No.03) Credit and Equity Exposures to Individuals/Companies/ Groups Aggregating P1 million and above Notarized Control Prooflist Quarterly Submission Deadline 15th business day from end of reference quarter Submission Procedure Electronic submission/ diskette . Available for Sale Securities and Investments in Bonds & Other Debt Instruments (Government Issue .Loans and Underwritten Debt Securities (Borrowings of Local Government Units) A-2 BSP-7-26-02-B Schedule 6 (FCs only) 4162Q Data on Firm's Businesses A-2 BSP-7-26-24 4162Q (As amended by CL dated 08.1 (For IHs) 4162Q Underwritten Securities.Loans and Underwritten Debt Securities A-2 BSP-7-26-02-B Schedule 1 (For FCs) 4162Q Loans/Receivables and Trading Account Securities Loans A-2 BSP-7-26-02-B Schedule 1.Page 3 A-2 Frequency .Local Government Units) A-2 BSP-7-26-02-A Schedule 1 (For IHs) 4162Q Loans/Receivables.Investments. Trading Account Securities Investments. Trading Account Securities . to be submitted via electronic mail cc: mail or e-mail to SDC. hard copy to appropriate department of the SES Fax to SDC @ 523-3461 APP.05) Consolidated Report on Required and Available Reserves Against Deposit Substitutes and Special Financing Weekly 4th business day following end of reference week A-2 BSP-7-26-05.24.12.1 4246Q Components of Deposit Substitutes with Original Maturities of 730 Days or Less -do- -do- BSP-7-26-05 4246Q Components of Deposit Substitutes with Original Maturities of more than 730 days Separate report for Head Office and each branch. Q-3 08. MOR Ref.3 4246Q Eligible Philippine Government Securities Utilized as Reserves against Deposit Substitutes -do- -do- -do- A-2 BSP-7-26-06 4116Q Statement of Capital Required and Capital Accounts SemiMonthly 7th business day after 15 and end of month E-mail to SDC: srsobqb@bsp. Report Title Frequency Submission Deadline Submission Procedure Manual of Regulations for Non-Bank Financial Institutions A-2 BSP-7-26-03-A/B 4162Q Consolidated Statement of Income and Expenses Monthly 15th business day following end of reference month A-2 BSP-7-26-05 4246Q (As amended by MAB dated 02. and a Consolidated Report for Head Office and Branches.31 Q Regulations Appendix Q-3 .gov.Form No.ph 4116Q Control Prooflist duly signed by the authorized officer of the institution Separate report for Head Office and each branch.Page 4 Category . and a Consolidated Report for Head Office and Branches. to be submitted via electronic mail A-2 BSB-7-26-05. A.12.21) Accumulated Market Gains/(Losses) (Item 1.4) Investment in Common Trust Funds (Item 1. BSP-7-26-23TR 4425Q.31 Q Regulations Appendix Q-3 .20) Allowance for Probable Losses (Item 1. No. MOR Ref.A. Q-3 08.03. May 2002 as amended by Cir.5) Deposits in Banks (Item 1.1) Unnumbered 4217Q.B.A.A.Appropriate department of the SES A-2 Unnumbered Report on Suspicious Transactions As transaction occurs 10th business day from date of transaction/ knowledge Original and duplicate Anti-Money Laundering Council (AMLC) 4691Q (Rev.08) APP. 612 dated 06.A.27. Officers.23) Exposures to Directors.Page 5 A-2 .13) CTF Revaluation Account (Item 1.4 (no prescribed form) Notice to BSP on SEC's approval of bond issue together with the documents required by the SEC for the creation and registration of the bond issue As approved 3rd business day from approval by SEC Original .A.03) Report Title Report on Trust and Other Fiduciary Business and Investment Management Activities with prescribed schedules Frequency Submission Deadline Submission Procedure Quarterly 10th business day after end of reference quarter SDC Schedules: Investment in Other Securities and Debt Instruments (Item 1.2 (IH with Trust only) (As amended by CL dated 01.A. Stockholders and Their Related Interest Government Funds Held in Trust Tax-Exempt Accountabilities (Items 1.Manual of Regulations for Non-Bank Financial Institutions Category A-2 Form No.2) Loans and Discounts (Item 1. Q-3 08. 609 dated 05. Stockholders. MOR Ref.08) Report Title Frequency Submission Deadline Submission Procedure Manual of Regulations for Non-Bank Financial Institutions -do- -do- -do- Certification of compliance with existing anti-money laundering regulations Annually 20th business day after date of election To be submitted to the appropriate department of the SES Financial Reporting Package for Trust Institutions Quarterly 20th banking day after end of reference quarter SDC sdcnbfi-frpti@bsp. A-2 Unnumbered 4691Q A-2 Unnumbered 4691Q (no prescribed form) A -2 Unnumbered (Cir.UITF Income Statment Control Prooflist A-3 BSP-7-26-18DF 4356Q Consolidated Monthly Report on Credit Accommodations to Directors.26.gov.Form No. and Their Related Interests -do- -do- Original CPCD/ISD APP.UITF E Fiduciary Accounts E1 to E1B Other Fiducirary Services .26. Officers.08 as amended by M-2008022 dated 06.ph -do- -do- -do- Report on Covered Transactions Schedules: Balance Sheet A1 to A2 Main Report B to B2 Details of Investments in Debt and Equity Securities C to C2 Details of Loans and Receivables D to D2 Wealth/Asset/Fund Management .31 Q Regulations Appendix Q-3 .1 4356Q Credit Accommodations to Directors.Page 6 Category .12. Officers. Stockholders and Their Related Interests Monthly 15th calendar day from end of reference month -do- A-3 BSP-7-26-18. A-3 Unnumbered 4162Q (CL-050 dated 10.04.4 Notice of Election/Appointment of Members of Board of Directors and Committees As change occurs 10th day from election/ assumption of office Original .4 Change of List of Directors/Officers/Employees As change occurs Immediately after change -do- APP.6 Outstanding Peso Derivatives Contracts -do- -do- -do- A-3 Unnumbered 4364Q Copy of Written Approval of Board of Directors on Credit Accommodations to Directors. 560 dated 01.28.31.12. Q-3 08. and Their Related Interests As Approved 20th business day from date of approval -do- A-3 Unnumbered 4328Q (Cir.Appropriate department of the SES B Unnumbered (no prescribed form) 4141Q. .07) Transmittal of Board Resolution/Written Approval on Credit Accomodations to Subsidiaries and/or Affiliates As loan to subsidiaries and/or affiliates is approved 20th banking days after date of approval or director Original and duplicate appropriate department of the SES B BSP 7-26-01 4162Q Information Sheet Annually January 31st Appropriate department of the SES B Unnumbered 4141Q.31 Q Regulations Appendix Q-3 .Manual of Regulations for Non-Bank Financial Institutions Category Report Title Frequency Submission Deadline Submission Procedure MOR Ref.07) Report on Borrowings of BSP Personnel Quarterly 15th business days after end of reference quarter Original to SDC A-3 Unnumbered 4603Q.Page 7 Form No. Stockholders.Appropriate department of the SES A-3 Unnumbered 4603Q.6 Report on Trading Gains/Losses on Derivatives Transactions -do- -do- -do- A-3 Unnumbered 4603Q.6 Outstanding Derivatives Contracts Monthly 5th business day from end of reference month Original .07 and CL-059 dated 11. Officers. 4 Report on Disqualification of Director/Officer B BSP-7-26-13 4308Q B BSP-7-26-10 B APP. MOR Ref.Page 8 Category .000) -do- 15th calendar day after end of reference quarter -do- B BSP-7-26-15 (IH only) 4162Q Report on Underwriting Activities -do- End of month following each quarter -do- B BSP-7-26-20 4381Q Report on Equity Investments in Non-Allied Undertakings Semestrally 15th business day following end of reference semester -do- B BSP-7-26-21 4103Q (As amended by Cir.12. No.Appropriate department of the SES B Unnumbered (no prescribed form) 4143Q. 557 dated 01. Q-3 08.12.07) Borrowing-Investment Program Annually on or before Nov. Report Title Frequency Submission Deadline Submission Procedure Manual of Regulations for Non-Bank Financial Institutions As disqualification occurs Within 72 hours from receipt of report by board of directors Appropriate department of the SES Past Due Receivables. Loans and/or Commercial Papers/Private Securities Quarterly 15th calendar day after end of reference quarter Original .31 Q Regulations Appendix Q-3 . 30 See Annex Q-3-a for details of the report B BSP-7-26-22 (IH only) 4162Q Annual Underwriting Program -do- 1st working day of March of reference year Original .Form No.Appropriate department of the SES 4309Q Information Sheet and "Truth in Lending Act" Creditor's Certification As needed - -do- BSP-7-26-14 4162Q Rolled-Over Loans and/or Commercial Papers (Above P100. Appropriate department of the SES As dividends are declared 10th business day from approval of declaration by the board of directors Original .2 Report Title Report on Investment Management Activities with prescribed schedules Frequency Submission Deadline Submission Procedure Quarterly 10th business day after end of reference quarter Original .A.3 Dividends Declared B BSP-7-26-26 4181Q Statement of Condition for Publication E-mail to SDC: [email protected] 9 Control Prooflist duly signed by the authorized officer of the institution . Stockholders and Their Related Interest Tax-Exempt Accountabilities (Item 1.4) Investment in Common Trust Funds (Item 1.12.19) Exposures to Directors.A.31 Q Regulations Appendix Q-3 .A.2) Loans and Discounts (Item 1. Officers.A.gov. Q-3 08.Appropriate department of the SES Quarterly 20th business day from receipt of call See Sec.1) B BSP-7-26-25 4126Q.5) Deposits in Banks (Item 1.12) Allowance for Probable Losses (Item 1.Manual of Regulations for Non-Bank Financial Institutions Category B Form No.ph Fax to SDC@ 523-3461 APP. 4425Q. 4181Q fpr requirement on publication of names of directors/officers Schedules: Investment in Other Securities and Debt Instruments (Item 1. BSP-7-26-23IM (IH with IMA only) MOR Ref.17) Accumulated Market Gains/(Losses) (Item 1.B. 31 Q Regulations Appendix Q-3 . MOR Ref. B Unnumbered 4214Q Daily Report on Interbank Borrowings not Effected Through Clearing Account with BSP Daily (only when there are transactions covered) Noon of business day following date of report Original .Page 10 Category . Q-3 08.Appropriate department of the SES B Unnumbered (IH only) 4162Q Securities Brokering Without Recourse Transactions for P50.Appropriate department of the SES 4162Q See Annex Q-3-c for reporting guidelines B Unnumbered 4162Q Report on Outstanding Loans Secured by Shares of Stocks of Other Banks/QBs APP.000 and Above Weekly 4th business day after end of reference week -do-do- For institutions authorized to engage in derivatives activities: B Unnumbered 4172Q Manual of Regulations for Non-Bank Financial Institutions Consolidated Annual Financial Statements of Financial Intermediaries and Their Allied Undertakings/Affiliates/Subsidiaries supported by Individual Annual Undertakings/Affiliates/Subsidiaries and their Audited Financial Statements Annually 120th calendar day after end of reference year Refer to 4181Q for guidelines on consolidation of statements B Unnumbered 4162Q (no prescribed form) Quarterly Report on Operations (signed by the President) Quarterly 30th day after end of reference quarter Original .Appropriate department of the SES B Unnumbered 4162Q (no prescribed form) Annual Report of Management to Stockholders Covering Results of Operations for the Previous Year Annually As soon as available -do B Unnumbered 4172Q (no prescribed form) Audited Financial Statements for Previous Year Prepared by the External Auditor and the Corresponding Auditor's Letter of Comments Annually 90th day after the start of audit -do- B Unnumbered Report on Crimes/Losses for Head Office/Branches As crime or incident occurs 48th hour from knowledge of crime/ incident See annex Q-3-c for reporting guidelines Original-Appropriate department of the SES Monthly 10th business day after end of reference month Original .12.Report Title Frequency Submission Deadline Submission Procedure Form No. 1 Board resolution on quasi-bank's signatories of report submitted to BSP As authorized 3rd day from date of resolution -do- B Unnumbered 4162Q Documentary requirements on directors/officers/major individual stockholders owning 10% or more of the outstanding voting securities Continuing requirements for any new director/ officer elected/ appointed for the first time in QBs unless such information is on file with the BSP for not more than 5 years See Annex Q-3-d for list of documentary requirements Unnumbered 4162Q Documentary requirements/information on organizational structure and operational policies See Annex Q-3-e for documentary requirements/ information required Upon submission of application to engage in QBF As changes occurs 15th calendar day from change/issuance Original .Appropriate BSP department of the SES .Page 11 B Original .Manual of Regulations for Non-Bank Financial Institutions Category Form No. Q-3 08. Report Title Frequency Submission Deadline Submission Procedure B Unnumbered 4162Q Certification under oath for "No transaction" (no interbank borrowings) dates during calendar quarter Quarterly 5th business day from end of reference quarter -do- B Unnumbered (no 4162Q prescribed form) Amendments to Articles of Incorporation/By-Laws/ material documents required to be submitted to BSP As changes occur 15th calendar day following change/ approval of change by proper authorities -do- B Unnumbered 4162Q.12.31 Q Regulations Appendix Q-3 .Appropriate department of the SES APP. MOR Ref. 12. Report Title Frequency Submission Deadline Submission Procedure B Unnumbered (no prescribed form) 4162Q Corporate Secretary's Certification under oath on list of stockholders and/or groups of stockholders As change in composition of stockholders occurs Immediately after change Original .2 Report on Required and Available Reserves on PesoDenominated CTFs. one copy to appropriate department of the SES - 30th business day from 31 July 2000 or from opening of the institution To be submitted to the appropriate department of the SES APP.Appropriate department of the SES Control Prooflist duly signed by the authorized officer of the institution Monthly 7th business day from receipt of BSP statement of account E-mail to SDC: [email protected]. Such Other Managed Peso Funds and TOFA-Others Weekly 3rd business day following reference week To be submitted by institutions with trust operations Manual of Regulations for Non-Bank Financial Institutions Original .ph Fax to SDC @523-3461 Reconciliation statement on demand deposit with BSP B Unnumbered 4691Q Plan of Action to comply with Anti-Money Laundering requirements Original to be submitted to BSP Comptrollership Department.Appropriate department of the SES B Unnumbered (no prescribed form) 4162Q Certification under oath that it has not granted any new loan or made any new investment during the period covered by the suspension In case of chronic reserve deficiency 4th business day following end of reference week -do- B Unnumbered (no prescribed form) 4425Q. Q-3 08.Page 12 Category .31 Q Regulations Appendix Q-3 . MOR Ref.Form No. Other Credit Accommodations.05 General Information Sheet M-2008-005 dated 02.31 B B 1 Form No.SEC Central Receiving Section Quarterly 15th banking day after end of reference quarter SDC B SEC Form Q Regulations Appendix Q-3 .04. as amended As transaction occurs Annual 30th day from date of Annual Stockholders' meeting or if changes occur. revised 4308Q.A.21 Report on Cancellations.Appropriate department of the SES Waiver of the Confidentiality of Information under Sections 2 and 3 of R.07) Report on FX Swaps with Customers1 where 1st Leg is a Purchase of FX Against Pesos (For QBs with derivatives license) Monthly 5th business days after end of reference month ID @ e-mail: iod@bsp. 1405.21 (Rev. Dec. 2007per Cir 591 dated 12. . Q-3 08. No.ph cc: mail SDC B Unnumbered 4603Q.5 Notice/Application for Write-off of Loans.6 Report on Transactions/Outstanding Derivatives Transactions as End-User Monthly - To be submitted to the appropriate department of the SES B Unnumbered 4603Q.Manual of Regulations for Non-Bank Financial Institutions Category MOR Ref.08 Disclosure Statement on SPV Transactions Excluding cross currency swaps APP. Advances and Other Assets As write-off occurs 25th business day prior to the intended date of write-off Original and duplicate .gov. Roll-overs and Non-Delivery of FX Forwards Purchase-Sales Contracts and Forward Leg of Swap Contracts1 (For QBs with derivatives license) Monthly 5th business days after end of reference month -do- Unnumbered (no prescribed form) 4162Q Audit Engagement Contract As contract is signed 15th calendar day from date of signing of contract Appropriate department of the SES SES Form 6H (CBP-7-16-21).27.12. 7th day from date of change Drop box .Page 12a MAB dated 09.02. Report Title Frequency Submission Deadline Submission Procedure Unnumbered (noprescribed form) 4603Q. Form No.10 and that all the information thereby supplied are true and correct Cir.12.31.12 (Cir. M-2008-019 Report Title Report on NDF transactions wirh non-resident Frequency Weekly Submission Deadline 2nd banking day after end of reference week Submission Procedure Email to SDC [email protected] 12b Category . Q-3 08.05 Certification under oath of independent directors that he/she is an independent directors as defined under section X141.gov.10.05) Notarized certification that the bank did not enter in Repurchase Agreement covering Government Securities.Notarized first page of each of the directors'/officers' bio-data saved in diskette and control prooflist .01) After election or appointment and as changes occur 7th banking day from the date of the meeting of the board of directors in which the directors/officers are elected or appointed Email to SDC or hardcopy .Notarized first page of Biographical Data or Notarized list of names of Directors/Officers whose Biographical Data were submitted thru electronic mail to be faxed to SDC (CL dated 01.If sent by electronic mail .09.31 Q Regulations Appendix Q-3 .If submitted in diskette form .05) Report on the Undocumented Repurchase Agreements -do- Within 72 hours from knowledge of transactions Appropriate department of the SES B Unnumbered 4211Q.10.06 Verified statement of directors/officers that he/she has all the aforesaid qualifications and none of the disqualifications (Next page is Page 13) APP.12 (Cir. 513 dated 02.ph cc: Treasury Dept.10. MOR Ref. 467 dated 01. 467 dated 01.gov. Commercial Papers and other NonNegotiable Securities or Instruments that are not documented Semestral 5th banking days after end of every semester -do- B SES II Form 15 (NP08-TB) 4142Q As amended by M-2008024 dated 07.08 Biographical Data of Diretors/Officers . [email protected] Fax to SDC @ (632) 523-3461 or 5230230 Control Prooflist Manual of Regulations for Non-Bank Financial Institutions B Unnumbered 4211Q.Appropriate department of the SES cc: SDC MAB dated 09. g. Likewise to be disclosed are the other preferred areas of investment. Individual or institutional source of funds.Page 13 . indicating as a minimum. Preference shall be given to fund usage and mobilization at terms beyond one (1) year. governmental or private. as well as the previous year's activities. Investment areas indicating industry direction of the corporation engaged in quasi-banking.APP. (d) receivables financing. real estate. 2.31 Annex Q-3-a INFORMATION ON ONE-YEAR BORROWING-INVESTMENT PROGRAM TO BE SUBMITTED BY QUASI BANKS (Annex to Appendix Q-3) 1.medium-term: one (1) year to five (5) years . Q-3 05.12. (c) investments in government securities. 3. (b) investments in stocks and bonds. and those related to the government programs and other projects which may be determined by the BSP..short-term: less than a year . For investment houses with quasibanking functions. condominium. (e) leasing activities. the proposed underwriting program. e. financial or non-financial.long-term: more than five (5) years (b) Interest rate per annum for the above three types of borrowings (more indicatory than fixed). Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-3 . the following: (a) money market operations. whether domestic or foreign. shall also be submitted identifying debt and equity issues. and (f) direct loaning operations. Borrowing operations to support the investment program indicating among others: (a) Maturity . Q-3 05.12.APP.Page 14 Manual of Regulations for Non-Bank Financial Institutions .31 Annex Q-3-b GUIDELINES GOVERNING THE CONSOLIDATION OF FINANCIAL STATEMENTS OF FINANCIAL INTERMEDIARIES AND THEIR ALLIED UNDERTAKINGS/SUBSIDIARIES/AFFILIATES (Annex to Appendix Q-3) (deleted by Cir. 494 dated 20 September 2005) Q Regulations Appendix Q-3 . theft.000 or more.Page 15 . 2. an initial report submitted within the five (5)-business day deadline may be accepted: Provided.12. Crimes involving quasi-bank personnel. shall likewise be reported to the BSP. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident. The following guidelines shall be observed in the preparation and submission of the report. even if the amount involved is less than those above specified. Quasi-banks shall report on the following matters through the appropriate SED: a. That a complete report is submitted not later than fifteen (15) business days from termination of investigation. b. forgery and other deceits) and other crimes involving loss/destruction of property of the quasi-banks when the amount involved in each crime is P20. thru the Director. destruction or damage to the institution's properties/facilities. regardless of whether or not such crimes involve the loss/destruction of property of the quasi-bank.APP. when the amount involved per incident is P100. Incidents involving material loss. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-3 . the original to the appropriate SED and the duplicate to the BSP Security Coordinator. swindling or estafa. other than arising from a crime. frustrated or attempted against property/ facilities (such as robbery. b.000 or more. Where a thorough investigation and evaluation of facts is necessary to complete the report. a.31 Annex Q-3-c REPORTING GUIDELINES ON CRIMES/LOSSES (Annex to Appendix Q-3) 1. Crimes whether consummated. Q-3 05. Security Investigation and Transport Department. 31 Annex Q-3-d DOCUMENTARY REQUIREMENTS ON DIRECTORS/OFFICERS/ MAJOR INDIVIDUAL STOCKHOLDERS (Annex to Appendix Q-3) I.APP. Q-3 05. and (c) Certification under oath by each director/officer to the effect that he/she is not disqualified under Sec. 4143Q. and (e) Affidavit of two (2) persons of good standing other than the present employer or relatives within the third degree of affinity or consanguinity. (c) Tax clearance for business purposes. For stockholders. Manual of Regulations for Non-Bank Financial Institutions . and such other relevant investigating agency as might be determined by the appropriate SED. Appropriate disclosures shall be made when necessary. Non-resident foreign directors shall be exempted from the documentary requirements enumerated above. Directors/Officers: (a) Bio-data sheet in the prescribed form accomplished under oath. and (c) Certification under oath that the foreign director is not disqualified under Sec. 4143Q. except for the following: (a) Bio-data sheet in the prescribed form accomplished under oath. III.12. Directors and/or major individual stockholders owning 10% or more of the outstanding voting securities: (a) Statement of financial condition as of latest date under oath or certified by an independent CPA . specifically on encumbered assets and names of creditors. the National Intelligence and Security Authority. credit standing and business experience from banking institutions in Manila/locality where firm operates and in places of residences or birth.Page 16 II. information on credit standing is sufficient. (b) Clearances from the Criminal Investigation Services of the Philippine Constabulary. (d) Information on integrity. (b) Income Tax Return for the preceding year. (b) Clearance from the National Bureau of Investigation ( NBI ) or the Department of Foreign Affairs. Q Regulations Appendix Q-3 . Documents on organizational structure and operational policies 1. 4. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-3 . 6.31 Annex Q-3-e DOCUMENTS/INFORMATION ON ORGANIZATIONAL STRUCTURE AND OPERATIONAL POLICIES (Annex to Appendix Q-3) I. and 7.Page 17 . ViceChairman and Directors (b) Number of directors per By-Laws (c) Number of vacancies in the Board II. Designations of positions in each department/unit/office with the respective duties and responsibilities. Box number 5. (b) Procedure/flow of paper work. Address 3. covering such areas as: (a) Signing/delegated authority. Executive officers including Auditor: (a) Names and titles (b) Telephone number of each officer (office) (c) For the Executive Vice-President. agency or extension office. indicate area of responsibility. Sample copies of each of the forms/reports used by each office/unit/ department other than those submitted to the BSP. 5. Other Data 1. Board of Directors including Corporate Secretary: (a) Names of Chairman. International Department (e) Include officers from President to Vice-President 7. 2. Name of Institution 2.O. Name of departments/units/offices with their respective duties and responsibilities. e. state the names of corporations where he serves as Chairman of the Board and names of other business enterprises where he is proprietor or partner (d) For Vice-Presidents and other officers with non-descriptive titles. 3.12.APP. Quiapo Branch or Makati Agency (b) Address (c) Names and telephone number of: (1) Manager (2) Cashier (3) Accountant (d) For agencies and extension offices. Chart of the firm's organizational structure or any substitute therefor. P. agencies and extension offices: (a) Name of branch. Manual of Instructions or the like embodying the operating policies/ procedures of each department/unit/office. Branches. Vice-President for Operations or Vice-President. e. Q-3 05. indicate name of mother branch. (d) Names of corporations where they serve as Chairman of the Board or as President and names of other business enterprises of which they are proprietors or partners (e) For the Corporate Secretary. indicate if he is also a Director (f) Date of annual election of directors per By-Laws 6. Memoranda-Circulars or the like issued covering organizational and operational and operation policies. Such other documents/information which may be required from time to time.g.g. and (c) Other matters. 333333 Year Ended Net Income After Tax December Q Regulations Appendix Q-3 .Page 18 Average Total Capital Accounts Sum of end-month Capital Accounts (December-March) divided by 4. Sum of end-month Capital Accounts (December September) divided by 10. All amounts and ratios to be reported shall be as of the same call date. Manual of Regulations for Non-Banks Financial Institutions .APP. the following guidelines shall be observed: 1. the basis for computing the Return on Average Equity shall be the latest quarter immediately preceding the call date. Sum of end-month Capital Accounts (December December) divided by 13.12. However.31 Annex Q-3-f GUIDELINES ON CALCULATINGADDITIONAL INFORMATION REQUIRED IN PUBLISHED STATEMENT OF CONDITION (Annex to Appendix Q-3) In calculating the additional information required to be disclosed in the Statement of Condition for publication. Return on Average Equity shall be computed as follows: Return on Average = Equity (%) Net Income/(Loss) After Income Tax Average Total Capital Accounts x 100 Where Net Income After Tax and Average Total Capital Accounts shall be: Net Income After Tax March Quarter End Net Income After Tax Multiplied by 4 June Semester End Net Income After Tax Multiplied by 2 September Nine (9) months Ended Net Income After Tax multiplied by 1. Q-3 05. Sum of end-month Capital Accounts (December . 2.June) divided by 7. shall be contained in a resolution approved by the board of directors in the format prescribed in Annex Q-4-a.12. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-4 . by the chief accountant. Likewise. and by the comptroller.Page 1 . or in his absence.31 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION (Appendix to Subsec. or in his absence. including their specimen signatures.APP. Q-4 05. or by officers holding equivalent positions. 4162Q.1 ) Category A-1 reports shall be signed by the chief executive officer. Categories A-3 and B reports shall be signed by officers or their alternates. Category A-2 reports of head offices shall be signed by the president. The designated signatories in this category. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate SED of the BSP within three (3) days from the date of resolution. executive vice-presidents. who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex Q-4-c. vice-presidents or officers holding equivalent positions. by the executive vice president. the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex Q-4-b. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. and. _____ Whereas.____________ or Executive Vice-President 3. the members of the Board of Directors of (Name of Institution) . by the Executive Vice-President.12. or by officers holding equivalent positions. Whereas. as it is hereby resolved that: 1. 20____. the members of the Board of Directors. Mr.Page 2 Manual of Regulations for Non-Bank Financial Institutions . Comptroller and Chief Accountant.31 Annex Q-4-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS Resolution No. CHAIRMAN OF THE BOARD ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY Q Regulations Appendix Q-4 . Q-4 05. Whereas. we. Mr. Mr. Mr.____________ or Chief Accountant _________________ Specimen Signature _________________ Specimen Signature _________________ Specimen Signature _________________ Specimen Signature are hereby authorized to sign Category A-1 reports of (Name of Institution) . or in his absence. by the Chief Accountant. this Board has full faith and confidence in the institution's Chief Executive Officer. or in his absence. 4162Q. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. Now. Done in the City of ________________ Philippines. it is required under Subsec. in designating the officials who would sign said Category A-1 reports.1 that Category A-1 reports be signed by the Chief Executive Officer. resolve. are conscious that. therefore. we.____________ and Comptroller 4. as the case may be.APP. we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general. Whereas. Executive Vice-President. and by the comptroller. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors.____________ President 2. therefore. this ____day of ____. are conscious that. the members of the Board of Directors. as the case may be) and.1 that Category A-2 reports of head offices be signed by the President. Vice-Presidents or officers holding equivalent positions.12. we.Page 3 . we. it is required under Subsec. 20____.APP. and that such reports of other offices be signed by the respective managers/officers-in-charge. etc. therefore. the members of the Board of Directors of (Name of Institution) . this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President. Whereas. 4162Q. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors. in designating the officials who would sign said Category A-2 reports. therefore. Whereas. we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general. _____ Whereas. Done in the City of ________________ Philippines. Executive Vice-Presidents. _____________ ________________ __________ _________ are hereby authorized to sign the Category A-2 reports of (Name of Institution) . resolve. Whereas. Q-4 05.. Now. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. as it is hereby resolved that: Name of Officer Specimen Signature Position Title Report No. CHAIRMAN OF THE BOARD ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ATTESTED BY: CORPORATE SECRETARY Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-4 .31 Annex Q-4-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS Resolution No. this ____day of ____. the person posting the general ledger entries or the authorized signatory of the bank account. The receipt of statements from depository banks should be assigned to an employee other than the one connected with the preparation.APP. clearly defined. These records should be kept currently posted and should contain sufficient detail so that an audit trail is established. 2. Periodic verification of securities and collaterals by someone other than their custodians. c. c. accept note payment nor process loan ledgers. A loaning officer should never be allowed to disburse proceeds of notes. Periodic verification of the accuracy of the interest credits and payments to deposit substitute liabilities accounts. All exceptions in the reconciliation/ verification should be followed up immediately until satisfactorily corrected. 2. 3. Irregular and unannounced count of cashier's cash and checks and other cash items at least twice a month by the auditor/ control officer or by an officer not connected with the treasurer's/cashier's office or its equivalent. f. Independent balancing shall mean that records posted by a person or cash held by a cashier shall be balanced or counted by another person.12. Collateral appraisals should be done by an employee/officer other than the ones approving the loans. All entries should bear official approval and should be initialed by the person originating and another person checking them. recording and signing of checks should be separated. documented and manualized if possible. The physical handling of a transaction should be separated from its recording and supervision as follows: a. Quasi-banks should maintain proper and adequate accounting records. The minimum independent balancing procedures which should be adopted are the following: a. e. Q-5 05. b. Independent Balancing 1. III. e. 4171Q) I. Verification should include both the physical inventory of securities and the record checking. d. understood. d. The functions of issuing. Division of Duties and Responsibilities 1. 3. II. recording and signing of checks. A person handling cash should not be permitted to post the ledger records nor should posting of the general ledger be performed by an employee who posts the investor's/creditor's subsidiary ledgers. Monthly reconcilement of cash in banks accounts (domestic and foreign) and due from/to head office/branches by someone other than the check custodian. or the person directly connected with processing the transactions. Monthly reconcilement of general ledger balances against their respective subsidiary and supporting records and documentations by someone other than the bookkeeper. 2.Page 1 . b. the person handling the records. The duties of all the officers and employees should be segregated. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-5 . Custodians of securities should not be allowed to handle security transactions.31 MINIMUM INTERNAL CONTROL STANDARDS FOR QUASI-BANKS (Appendix to Sec. No individual shall have complete authority and responsibility for handling all phases of any transaction from beginning to end. Proper Accounting Records 1. APP. Q-5 05.12.31 g. Incoming checks and other cash items should be recorded chronologically in a register by an employee other than the bookkeeper; h. Credit reports should be obtained by someone other than lending officers; i. Mailing of client's statements and delinquent notices should be done by an employee other than the one who granted the loan or the one handling the records; and j. Paid checks/drafts should be controlled and maintained by an officer/ employee other than the authorized signatory or the cashier. 3. Extensive background checking of persons intended to be assigned to handle cash and securities should be conducted. Frequent follow-up checking after their employment should also be made. IV. Joint Custody 1. Joint custody shall mean the processing of transactions in the presence of and under the direct observation of a second person. Both persons shall be equally accountable for the physical protection of the items and records involved. 2. Physical protection should be deemed established through the use of two (2) locks or combinations on a file chest or vault compartment. 3. Two (2) or more persons should be assigned to each half of the control so that operating efficiency is not impaired if one person is not immediately available. 4. Persons who are related to each other within the third degree of consanguinity or affinity should not be made joint custodians. 5. The following should be under joint custody: a. Cash on hand or in vault b. All accountable forms c. Collaterals Q Regulations Appendix Q-5 - Page 2 d. Securities e. Documents of title and/or ownership of properties or fixed assets f. Safekeeping items g. Vault doors and safe combinations. V. Signing Authorities Signing authorities for the different levels of officers to sign for and in behalf of the institutions should be approved by the board of directors and the extent of each level of authority should be clearly defined. These signing authorities should include but need not be limited to the following: a. Lending; b. Borrowing; c. Investments; d. Approval of expenses; e. Various supervisory reports; and f. Checks. VI. Dual Control 1. Dual control shall mean the work of one (1) person is to be verified by a second person to determine (a) that proper authority has been given to handle the transaction, (b) that the transaction is properly recorded, and (c) that proper settlement of the transaction is made. 2. The routine of each transaction should be designed so that at least two (2) or more individuals are involved in the completion of every transaction. 3. The following accounts/transactions should be under dual control: a. Checks - The signature of at least two (2) officers should be required in the issuance of checks. b. Borrowing - The signature of at least two (2) authorized officers should be required. c. All transactions giving rise to "due to" or "due from" account and all instruments of remittances evidencing Manual of Regulations for Non-Bank Financial Institutions APP. Q-5 05.12.31 these transactions particularly those involving substantial amounts, should be approved by two (2) authorized officers. VII. Number Control 1. Sequence number controls should be incorporated in the accounting systems and should be used in registering notes, in issuing official checks and in other similar situations. Number control should be policed by a person designated by senior management who should be detached from the particular operations involved. 2. The following are the forms, instruments and accounts that should be number-controlled: a. Checks; b. Promissory notes and other commercial papers; c. Official and provisional receipts; d. Certificate of stocks; e. Loan accounts; and f. Expense vouchers. VIII. Rotation of Duties 1. The duties of personnel handling cash, securities and bookkeeping records should be rotated. 2. Rotation assignment should be irregular, unannounced and long enough to permit disclosure of irregularities or manipulations. IX. Independence of the Internal Auditor 1. The position of internal auditor should be provided for in the by-laws together with the duties and responsibilities, scope and objectives of internal auditing. 2. The internal auditor should report directly to the Audit Committee. 3. The internal auditor should not install nor develop procedures, prepare records or engage in other activities which he normally reviews or appraises. X. Direct Verification 1. Direct verification shall mean the confirmation of account or records by direct correspondence/visits with the institution's customers. 2. The following accounts, among others, should be subject to direct verification by the internal auditing staff at least once a year: a. Balances of loans and credit accommodations of borrowers; b. Outstanding balances of borrowings and other liabilities; c. Outstanding balances of receivables/ payables; and d. Collaterals securing said accounts. XI. Other Internal Control Standards 1. Investments a. Investment limits and a list of accredited companies as approved by the Board of Directors or by its Credit Committee should be established as a guide for investing in any financial institution engaged in money market trading. b. Investments should be secured by assets approved by the Board of Directors or by its Credit Committee. c. Checks representing placements of investments should be released only upon receipt of either the deposit substitute instrument or the underlying securities or documents of title. 2. Miscellaneous a. Loan applications and related documents should be spot-checked to insure their authenticity, including verification of name, residence, employment and current reputation of the borrowers. b. No employee should be permitted to process transaction affecting his own account. c. Cashiers and other employees having contact with customers should be prohibited from preparing deposit substitute tickets or other records for the customers. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-5 - Page 3 APP. Q-5 05.12.31 d. Quasi-banks should have a sound recruitment policy since internal control begins from point of hiring. e. Quasi-banks should secure adequate insurance coverages, fidelity and other indemnity protection, viz: Q Regulations Appendix Q-5 - Page 4 (1) Insurance coverage - for losses arising from calamities and theft/ robberies. (2) Fidelity bonds - for losses arising from dishonest, fraudulent and criminal acts of accountable officers/employees. Manual of Regulations for Non-Bank Financial Institutions APP. Q-6 05.12.31 STANDARDIZED DEPOSIT SUBSTITUTE INSTRUMENTS (Appendix to Subsec. 4211Q.3) Serial No. (Name of Quasi-Bank) PROMISSORY NOTE Issue Date : Maturity Date : FOR PESOS , 20 , 20 (P ) (Present Value/Principal) RECEIVED, promises to pay (Name of Issuer/Maker) or order, the sum (Name/Account Number of Payee) of PESOS (P ) (Maturity Value/Principal & Interest) subject to the terms and conditions on the reverse side hereof. (Duly Authorized Officer) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-6 - Page 1 APP. Q-6 05.12.31 TERMS AND CONDITIONS OF A PROMISSORY NOTE 1. Computation of Yield Interest is hereby stipulated/computed at % per annum, compounded ( ) monthly ( ) quarterly ( ) semi-annually ( ) others. 2. No Pretermination This promissory note shall not be honored or paid by the issuer/maker before the maturity date indicated on the face hereof. 3. Liquidated Damages In case of default, issuer/maker shall pay, in addition to stipulated interest, liquidated damages of (Amount or %) , plus attorney's fees of (Amount or %) and costs of collection in case of suit. 4. Renewal ( ) No automatic renewal. ( ) Automatic renewal under the following terms: 5. Collateral/Delivery ( ) No collateral ( ) Collateral/secured by (describe collateral) ( ) Physically delivered to Payee ( ) Evidenced by Custodian Receipt No. issued by ( ) Collateralized/secured by (fraction or %) share of (describe collateral) by Custodian Receipt No. dated issued by . dated as evidenced 6. Substitution of Securities ( ) Not acceptable to Payee ( ) Acceptable to Payee, however, actual substitution shall be with prior written consent of payee. 7. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of (describe document) dated executed by (name of party/ies) made an integral part hereof. Q Regulations Appendix Q-6 - Page 2 and Manual of Regulations for Non-Bank Financial Institutions APP. Q-6 05.12.31 Serial No. (Name of Quasi-Bank) REPURCHASE AGREEMENT Issue Date : Repurchase Date : , 20 , 20 FOR AND IN CONSIDERATION OF PESOS (P ) (name of Quasi-Bank hereby sells, transfers and conveys in favor of Vendee, Vendor, (name of Vendee) the security(ies) described below, it being mutually agreed upon that the same shall be resold by Vendee and repurchased by Vendor on the repurchase date indicated above at the price of PESOS (P ), subject to the terms and conditions stated on the reverse side hereof. (Description of Securities) Issuer Serial Number/s Maturity Date/s TOTAL Face Value Interest/Yield P P P P CONFORME: (Duly Authorized Officer) (Signature of Vendee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-6 - Page 3 APP. Q-6 05.12.31 TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT 1. Computation of Yield Yield is hereby stipulated/computed at % per annum, compounded ( ) monthly ( ) quarterly ( ) semi-annually ( ) others. 2. No Pretermination Vendor shall not repurchase subject security/ies before the repurchase date stipulated on the face of this document. 3. Liquidated Damages In case of default, the Vendor shall be liable, in addition to stipulated yield, for liquidated damages of (Amount or %) , plus attorney's fees of (Amount or %) , and costs of collection in case of suit. 4. Renewal ( ) No automatic renewal ( ) Automatic renewal under the following terms: 5. Delivery/Custody of Securities ( ) Physically delivered to Payee ( ) Evidenced by Custodian Receipt No. issued by dated, 6. Substitution of Securities ( ) Not acceptable to Payee ( ) Acceptable to Payee, however, actual substitution shall be with prior written consent of payee. 7. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of (describe document) dated , executed by (name of Party/ies) and made an integral part hereof. Q Regulations Appendix Q-6 - Page 4 Manual of Regulations for Non-Bank Financial Institutions APP. Q-6 05.12.31 Serial No. (Name of Quasi-Bank) CERTIFICATE OF ASSIGNMENT WITH RECOURSE Issue Date: , 20 FOR AND IN CONSIDERATION OF PESOS (P ) (name of Assignor) hereby assigns, conveys, and transfers with recourse to (name of Assignee) the debt of (name of Principal Debtor) to the Assignor, specifically described as follows: (Description of Debt Securities) Principal Debtor Serial Number/s Maturity Date/s TOTAL Face Value Interest/Yield P P P P and Assignor hereby undertakes to pay, jointly and severally with the Principal Debtor, the face value of, and the interest/yield on, said debt securities. The assignment shall be subject to the terms and conditions on the reverse side hereof. CONFORME: (Duly Authorized Officer) (Signature of Assignee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-6 - Page 5 APP. Q-6 05.12.31 TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE 1. No Pretermination Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof. 2. Liquidated Damages In case of default, Assignor shall be liable, in addition to interest, for liquidated damages of (Amount or %) plus attorney's fees of (Amount or %) , and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Assignee ( ) Evidenced by Custodian Receipt No. issued by dated . 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of dated executed by (name of Party/ies) and made an integral part hereof. Q Regulations Appendix Q-6 - Page 6 , , Manual of Regulations for Non-Bank Financial Institutions APP. Q-6 05.12.31 Serial No. (Name of Quasi-Bank) CERTIFICATE OF ASSIGNMENT WITH RECOURSE Issue Date: , 20 FOR AND IN CONSIDERATION OF PESOS (Present Value/Principal) (P ), (name of Assignor) hereby assigns, conveys, and transfers with recourse to (name of Assignee) the debt of (name of Principal Debtor) to the Assignor, specifically described as follows: Principal Debtor Serial Number/s Maturity Date/s TOTAL Face Value Interest/Yield P P P P and hereby undertakes that in case of default of the Principal Debtor, Assignor shall pay the face value of, and the interest/yield on, said debt securities, subject to the terms and conditions on the reverse side hereof. CONFORME: (Duly Authorized Officer) (Signature of Assignee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-6 - Page 7 APP. Q-6 05.12.31 TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE 1. No Pretermination Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof. 2. Liquidated Damages In case of default, Assignor shall be liable, in addition to interest, for liquidated damages of (Amount or %) plus attorney's fees of (Amount or %) , and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Assignee ( ) Evidenced by Custodian Receipt No. issued by dated 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of dated executed by (name of Party/ies) made an integral part hereof. Q Regulations Appendix Q-6 - Page 8 , , and Manual of Regulations for Non-Bank Financial Institutions APP. Q-6 05.12.31 Serial No: (Name of Quasi-Bank) CERTIFICATE OF PARTICIPATION WITH RECOURSE Issue Date: , 20 FOR AND IN CONSIDERATION OF PESOS (P ), this certificate of participation is hereby issued to evidence the (Fraction or %) share of (name of Participant) in the loan/s of granted by/ assigned to the herein Issuer, specifically described as follows: (Description of Debt Securities) Principal Debtor Serial Number/s Maturity Date/s Face Value TOTAL Interest/Yield P P P P The issuer shall pay, jointly and severally with the Principal Debtor, (Fraction or %) share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms and conditions on the reverse side hereof. CONFORME: (Duly Authorized Officer) (Signature of Participant) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-6 - Page 9 APP. Q-6 05.12.31 TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE 1. No Pretermination Issuer shall not pay nor repurchase the participation before the maturity date of subject security(ies). 2. Liquidated Damages In case of default, the Issuer of this instrument shall be liable, in addition to interest, for liquidated damages of (Amount or %) , plus attorney's fees of (Amount or %) , and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Participant ( ) Evidenced by Custodian Receipt No. issued by dated , 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of (describe document) , dated executed by (name of Party/ies) and made an integral part hereof. Q Regulations Appendix Q-6 - Page 10 Manual of Regulations for Non-Bank Financial Institutions APP. Q-6 05.12.31 Serial No: (Name of Quasi-Bank) CERTIFICATE OF PARTICIPATION WITH RECOURSE Issue Date: FOR AND IN CONSIDERATION OF PESOS this certificate of participation is hereby issued to evidence the of (Participant) in the loan/s of to the herein Issuer, specifically described as follows: , 20 , (P ) (Fraction or %) share granted by/assigned (Description of Debt Securities) Principal Debtor Serial Number/s Maturity Date/s TOTAL Face Value Interest/Yield P P P P In case of default of the Principal Debtor, the Issuer shall pay the (Fraction or %) share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms and conditions on the reverse side hereof. CONFORME: (Duly Authorized Officer) (Signature of Participant) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-6 - Page 11 APP. Q-6 05.12.31 TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE 1. No Pretermination Issuer shall not pay nor repurchase the participation before the maturity date of subject security(ies). 2. Liquidated Damages In case of default, the Issuer of this instrument shall be liable, in addition to interest, for liquidated damages of (Amount or %) , plus attorney's fees of (Amount or %) , and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Participant ( ) Evidenced by Custodian Receipt No. issued by dated , . 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of (describe document) dated executed by (name of Party/ies) and made an integral part hereof. Q Regulations Appendix Q-6 - Page 12 Manual of Regulations for Non-Bank Financial Institutions APP. Q-7 05.12.31 NEW RULES ON REGISTRATION OF SHORT-TERM COMMERCIAL PAPERS (Appendix to Subsec. 4211Q.9) Pursuant to Presidential Decree No. 678, as amended by Presidential Decree No. 1798, and other existing applicable laws, the Securities and Exchange Commission (SEC) hereby promulgates the following new Rules and Regulations governing short-term commercial papers, in the interest of full disclosure and protection of investors and lenders, in accordance with the monetary and credit policies of the BSP. Sec. 1. Scope. These Rules and Regulations shall apply to short-term commercial papers issued by corporations. Sec. 2. Definition. For the purpose of these Rules, the following definitions shall apply: (a) Commercial paper is an evidence of indebtedness of any corporation to any person or entity with a maturity of 365 days or less. (b) Interbank loan transactions shall refer to borrowings between and among banks and non-bank financial intermediaries duly authorized to perform quasi-banking functions. (c) Issue means creation of a commercial paper and its actual or constructive delivery to the payee. Sec. 3. Registration of Commercial Papers. Any corporation desiring to issue commercial paper shall apply for registration with, and submit to, the SEC the following: (a) Ordinary Registration; (1) Sworn Registration Statement in the prescribed form; (2) Board resolution signed by majority of its members (a) authorizing the issue of commercial paper, (b) indicating the aggregate amount to be applied for, (c) providing that the registration statement shall be signed by the principal executive officer, the principal operating officer, the principal financial officer, the comptroller, or principal accounting officer, or persons performing similar functions, and (d) designating at least two senior officers with a rank of vice-president or higher, or their equivalent, to sign the commercial paper instrument to be issued; (3) The latest audited financial statements; and should the same be as of a date more than three (3) months prior to the filing of the registration statement, an unaudited financial statement as of the end of the immediately preceding month: Provided, however, That such unaudited financial statement shall be certified under oath by the accountant and the senior financial officer of the applicant, duly authorized for the purpose, and substituted with an audited financial statement within 120 days after the end of the applicant's fiscal year. (4) Schedules A to L, based on subsection (3) above, in the form attached as Annex "A"; (5) A committed credit line agreement with a bank, or any financial institution which may be qualified subsequently by the BSP, earmarked specifically for repayment of aggregate outstanding commercial paper issues on a pro-rata basis, with the following features: (i) A firm, irrevocable commitment to make available funds to cover at least 20% of the aggregate commercial papers outstanding at any time: Provided, That if the commitment is extended by a group, there shall be a lead bank or any financial institution which may be qualified subsequently by the BSP acting for the group; Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-7 - Page 1 APP. Q-7 05.12.31 (ii) The commitment shall be effective for as long as the issues are outstanding and may be renewed by the bank or any financial institution which may be qualified subsequently by the BSP; (iii) The request for drawdown shall be addressed to the bank or any financial institution which may be qualified subsequently by the BSP, which request shall be duly signed by a member of the board of directors and a senior financial officer of the commercial paper issuer, duly authorized for the purpose by an appropriate board resolution, which shall also provide for the designation of the alternate signatories (likewise a member of the board of directors and a senior financial officer); (iv) A provision that availments shall be allowed only for repayment of commercial papers which are due and payable in accordance with the terms of the commercial paper; (v) Notwithstanding the foregoing requirements for a committed credit line with a bank, or any financial institution which may be qualified subsequently by the BSP, any corporation desiring to issue commercial papers may be exempted from compliance therewith by the SEC, should it meet all of the following financial ratios based on consolidated audited financial statements for the immediate past three (3) years: 1) Average current ratio shall be at least 1.2:1 computed as follows: Current ratio = Current Assets Current Liabilities OR Average acid-test ratios shall be at least 0.5:1 computed as follows: Acid-test ratio= Cash, receivables, and marketable securities Current Liabilities Q Regulations Appendix Q-7 - Page 2 2) Average solvency position shall be one whereby total assets must not be less than total liabilities; 3) Average net profit margin shall be at least 3% computed as follows: Net income after income tax, corporate development taxes, and other non-cash charges Net profit margin= Net sales or revenues OR Average annual return on equity shall be at least 8% computed as follows: Net income after income tax, corporate development taxes, and other non-cash Return on equity= Total stockholders' equity 4) Average interest service coverage ratio shall be at least 1.2:1 computed as follows: Interest service = coverage ratio Net income-before-interest expense, income tax, corporate development taxes, and other non-cash charges Interest expense 5) Debt-to-equity ratio shall not exceed 2.5:1. The SEC may, in its discretion, consult with industry organization(s) such as Investment Houses (IHs) Association of the Philippines (IHAP) and Bankers Association of the Philippines (BAP) and/or the Credit Information Bureau, Inc. 6) A selling agreement for the commercial paper issues with an expanded commercial bank or an investment house, or any financial institution which may be qualified subsequently by the BSP, with minimum conditions that the selling agent, among others, shall be responsible for ensuring that the issuer observes the provisions of these rules pertaining to the use of proceeds of the committed credit Manual of Regulations for Non-Bank Financial Institutions among others. the amount of the line which shall be at least 20% of the aggregate outstanding commercial paper issues. as amended by P. No. That if the selling agreement is with a group.D.31 line and. These short-term commercial papers may not be sold nor may offer to buy be accepted prior to the time the registration statement is approved. among others. finally. That if the commercial paper issuer is unable to provide the information necessary to meet such reportorial requirements. officers. (iv) Intended use of proceeds." (ii) Aggregate maximum amount applied for. and committed credit line. (viii) Encumbered assets. (iii) Description and nature of the applicant's business. it being understood that the primary responsibility for the submission of the report to said regulatory agencies is upon the selling agent: Provided. there shall be a syndicate manager acting and responsible for the group. if the applicant has been in operation for less than three years. Information contained herein is subject to completion or amendment. (vi) The provision in the selling agreement naming the selling agent and the responsibilities of the selling agent in connection with. as well as borrowings and advances to said entities. notify the SEC of such inability on the part of the issuer: Provided. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-7 . over one (1) year. proceeds of which shall be allocated on a pro-rata basis to the aggregate outstanding commercial paper issue (regardless of the order of their maturities).12. No. 1798. (v) The nature of the firm. (vii) Other obligations of the commercial issuer classified by maturities (maturing within six (6) months. (x) List of entities where it owns more than 33-1/3% of the total equity. indicating any advance to said directors. or sale is prohibited prior to registration under the Securities Act. That. but has not yet been approved by. and stockholders owning 2% or more of the total subscribed stock of the corporation. (7) Income statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided. as stipulated in the credit line agreement between the bank and the issuer. officers. it shall submit income statements for such number of years that it has been in operation. and past-due amounts). the selling agent shall. solicitation. Q-7 05. irrevocable. (ix) Directors. the use by the issuer of the proceeds of the bank committed credit line and the reportorial requirements under these rules. shall be jointly responsible for complying with all reportorial requirements of the SEC and the BSP in connection with the commercial paper issue.Page 3 . however. and stockholders. This preliminary prospectus shall not constitute an offer to buy nor shall there be any sale of these commercial papers in the Philippines as such offer. not later than two (2) working days prior to the date when the report is due. from six (6) months to one (1) year. stated on the front page of the prospectus. composed of expanded commercial banks and/or investment houses or any financial institutions which may be qualified subsequently by the BSP. (8) A printed copy of a preliminary prospectus approved by the applicant's Board of Directors which. 678 and P.APP.D. with the issuer. shall contain the following: (i) A statement printed in red on the left-hand margin of the front page of the following tenor: "A registration statement relating to these short-term commercial papers has been filed with. and the manner of availments. the SEC. including guarantees. be prepared and submitted by the selling agent on behalf of the applicant: (1) Projected annual cash flow statement as of the date of filing. investment companies. presented on a quarterly basis. No. (iii) Ratio of (a) net income after taxes to (b) net worth. Philippine National BanK (PNB). The following specific debt instruments are exempt per se from the provisions of these Rules: (a) Evidence of indebtedness arising from interbank loan transactions. Government Service Insurance System. That if the applicant has been in operation for less than three (3) years. 1051 dated 19 June 1981.Page 4 Sec. supported by schedules on actual maturity patterns of existing receivables and liabilities (under six (6) months. (e) Evidence of indebtedness issued to the following primary institutional lenders: banks. IHs. venture capital corporations. nonstock savings and loan associations (NSSLA). and other entities that may be classified as primary institutional lenders by the BSP. Development Bank of the Philippines (DBP). financing companies. (iv) Net profits-to-sales ratio. trust companies. (b) Evidence of indebtedness issued by the national and local governments. in consultation with the SEC: Provided. Commercial Papers Exempt Per Se. These additional data shall likewise be incorporated in the prospectus.APP.12. pawnshops. with respect to private development banks in connection with their rediscounting privilege. and financial intermediaries with quasi-banking functions. six (6) months to one (1) year. whenever it deems necessary impose other requirements in addition to those enumerated in subsections (a) and/or (b) above. in addition to the immediately preceding requirements. Manual of Regulations for Non-Bank Financial Institutions . 4. (ii) Debt-to-equity ratio. (b) Special Registration In the case of special registration provided for under Section 10 hereof. current receivables to (b) the total of current liabilities. pension and retirement funds approved by the Bureau of Internal Revenue (BIR). and past-due amounts) and inventory turnover as of the end of the month prior to the filing of the registration statement. it shall submit financial statements for such number of years that it has been in operation. Q-7 05. educational assistance funds established by the national government. special purpose corporations referred to in Central Bank Monetary Board Res. (c) The SEC may. Q Regulations Appendix Q-7 . (c) Evidence of indebtedness issued to the BSP under its open market and/or rediscounting operations. and (2) Complementary financial ratios for each of the immediate past three (3) fiscal years: (i) Ratio of (a) the total of cash on hand. (d) Evidence of indebtedness issued by the BSP. quasi-banks. That all such evidences of indebtedness shall be held on to maturity and shall neither be negotiated nor assigned to any one other than the BSP and the DBP. including their trust accounts. building and loan associations. over one (1) year. with debt referring to all kinds of indebtedness. including their trust accounts. and the Social Security System (GSIS). and (v) Such other financial indicators as may be prescribed by the SEC. marketable securities. insurance companies. the following shall. Land Bank of the Philippines (LBP).31 (xi) Financial statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided. government financial institutions. in cases where the requirement of applicable laws and regulations governing the issuance of commercial papers have not been complied with. Q-7 05. does not exceed 300% of networth based on the financial statements referred to under Section 3(a) (3). Any violation of said BSP rules/regulations or circulars shall be considered a violation of these rules and regulations. Other Commercial Papers Exempt from Registration.31 (f) Evidence of indebtedness the total outstanding amount of which does not exceed P5. grant the applicant a Certificate of Registration and Authority to Issue Commercial Papers. 9. Sec. or for reasons which shall be so stated. 7. as provided under Section 15. except of a class exempt under Sections 4 and 5 hereof. No commercial paper. the SEC shall act upon the application and shall. Sec. Sec. provided that renewal thereof. The same principle shall apply in the case of renewal of the Authority to Issue Commercial Paper.APP. 10. Compliance with Bangko Sentral Quasi-Banking Requirements Nothing in these Rules shall be construed as an exemption from or a waiver of the applicable BSP rules/regulations or circulars governing the performance of quasi-banking functions or financial intermediaries duly authorized to engage in quasi-banking activities. as contemplated in the preceding section. 8. If the value of commercial papers applied for. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-7 . 5. Validity Period of the Authority to Issue Commercial Paper.Page 5 . 11. (g) Evidence of indebtedness denominated in foreign currencies. and to the reportorial requirements under Section 17. Ordinary Registration. and (h) Evidence of indebtedness arising from bonafide sale of goods or property. the commercial papers shall be registered upon compliance with the requirements specified in Section 3(a) hereof. Special Registration. That no registered commercial paper issuer may issue commercial paper exempt per se under Section 4 (f) hereof. in the appropriate case. when added to the total outstanding liabilities of the applicant. all under these Rules. Commercial papers issued by any financial intermediary authorized by the BSP to engage in quasi-banking functions shall be exempt from registration under Section 3. shall be issued unless such commercial paper shall have been registered under these Rules: Provided. Sec. 6. it shall be subject to compliance with the requirement under Section 3(b) hereof. Prohibition. If the value of commercial paper applied for exceeds 300% of networth. (b) The SEC shall return any application for registration. but shall be subject to payment of the exemption fee. may be for a period shorter than 365 days. which evidence of indebtedness shall be payable to a specific person and not to bearer and shall neither be negotiated nor assigned but held on to maturity.The authority to issue commercial papers shall be valid for a period of 365 days which shall be indicated in the Authority to Issue Commercial Paper.000 and issued to not more than ten (10) primary lenders other than those mentioned in subsection (e) above.12. Sec.000. Sec. Sec. Action on Application for Registration (a) Within sixty (60) days after receipt of the complete application for registration. upon application filed at least forty five (45) days prior to its expiry date. (b) A specimen of the proposed commercial paper instrument shall be submitted to the SEC for approval of the text thereof. Sec. and for renewals thereof. Notice of Availment Whenever the credit line is drawn upon. the projected quarterly cash flow statements with the corresponding quarter's actual figure. the selling agent and/or issuer shall. within two (2) working days immediately following the date of drawdown. 12. to be submitted within ten (10) working days following the end of the reference quarter. Manual of Regulations for Non-Bank Financial Institutions . and (3) For issuers whose application for registration was under Section 10 hereof. Sec. The selling agent shall.Page 6 Sec. or schedule the maturities of the registered commercial paper to be issued. an annual exemption fee of P10. a filing fee of not more than 1/50th of 1% based on the total commercial paper proposed to be issued. Basic Features of Registered Commercial Papers (a) All registered commercial paper instruments shall have a standard format. (2) Quarterly reports on commercial paper transactions. the Authority to Issue Commercial Paper is automatically suspended. and shall be released by the SEC to the issuer. within the next working day. or reduce the authorized amount thereunder. among others. indicating the amount availed of and the total availment as of that given time. Sec. Every registrant shall pay the following fees: (a) Upon application for registration. to be submitted within thirty (30) calendar days following the end of the reference quarter. serially pre-numbered. 14. 13.APP. Conditions of the Authority to Issue Commercial Paper (a) In the event that the commercial paper issuer fails to pay in full any commercial paper upon demand at stated maturity date. notify the SEC of such event. Q Regulations Appendix Q-7 . (c) The approved instrument shall be printed by the BSP Security Printing Plant pursuant to a prior authorization from the SEC. enjoining both the issuer and the selling agent from further issuing or selling Commercial papers. and denominated. accompanied by an interim quarterly financial statement. and the SEC shall forthwith issue a formal Cease-and-Desist Order. The instrument shall state. (b) Whenever necessary to implement the monetary and credit policies promulgated from time to time by the Monetary Board of the BSP. 17. 15. to be submitted within ten (10) working days following the end of the reference month. Minimum Maturity Value The maturity value of each registered commercial paper instrument shall not be lower than P300.000. the SEC may suspend the Authority to Issue Commercial Paper. the debt ceiling of the registrant and a notice that information about the registrant submitted in connection with the registration and other reportorial requirements from the issuer is available at the SEC and open to public inspection and that the issuer is not authorized by the BSP to perform quasi-banking functions. notify the SEC thereof. Periodic Reports (a) Issuers of registered commercial papers and those exempt under Section 5 hereof shall submit to the SEC and the BSP the following reports in the prescribed form: (1) Monthly reports on commercial papers outstanding as at the end of each month. (b) For issuers of commercial paper exempt under Section 5 hereof. Fees. Sec.31 Sec.12.000. 16. Q-7 05. Effectivity. Such Cease-and-Desist Order shall be confidential in nature until after the imposition of the sanctions mentioned in Section 18 shall have become final and executory. Sec.12. the SEC shall notify the parties involved. 22. or violation of the disclosure requirements of the Securities Act and of these Rules and Regulations. That such fine shall in no case be less than P200 or more than P50. Any authority to Issue Commercial Paper. Sec. Sec. or refuses to permit any lawful examination into its corporate affairs. Cease-and-Desist Order. or to impose the administrative sanctions provided for in Section 18 not later than fifteen (15) days after receipt of notice. 19. in a registration statement and its supporting papers. of the Certificate of Registration and Authority to Issue Commercial Paper.Page 7 . be renewed on the basis of the Rules of Registration of Commercial Papers dated 10 December 1975 for an aggregate period not exceeding fifteen (15) months from its expiry date. Administrative Sanctions.) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-7 . and all the amendments to said Rules. (c) Other penalties within the power of the SEC under existing laws. Q-7 05. (c) Issuers whose offices are located in the provinces may submit their reports to the nearest extension offices of the SEC.31 (b) These periodic reports shall be signed under oath by the corporate officers authorized pursuant to a board resolution previously filed with the SEC. issue a Cease-and-Desist Order ex-parte if the violation(s) mentioned in Section 18 may cause great or irreparable injury to the investing public. valid and subsisting as of the date of the effectivity of these Rules and Regulations. has made any untrue statement of a material fact. 21. 18. Sec. as well as in the periodic reports required to be filled with the SEC and the BSP. 20. in its discretion. Transitory Provision. Immediately upon the issuance of an ex-parte Cease-and-Desist Order. and memoranda circular of the SEC which are inconsistent herewith are likewise hereby repealed or modified accordingly. however. Sec.APP.000 for each violation. at the discretion of the SEC and subject to such conditions as it may impose. (b) A fine in accordance with the guidelines that the SEC shall issue from time to time: Provided. Repealing Clause. regulations. plus not more than P500 for each day of continuing violation. All other rules. The issuance of such Cease-and-Desist Order automatically suspends the Authority to Issue Commercial Paper. or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading. or may amount to palpable fraud. impose any or all of the following sanctions: (a) Suspension or revocation. shall remain valid and upon its expiration may. and schedule a hearing on whether to lift such order. (Editors Note: Annexes "A" and "B" are not reproduced in this Appendix. These Rules and Regulations supersede the Rules on Registration of Commercial Papers dated 10 December 1975. If the SEC finds that there is a violation of any of these Rules and Regulations and implementing circulars or that any issuer. orders. Annex "B" hereof shall initially be the guideline on the scale of fines. on its own motion or upon verified complaint by an aggrieved party. These Rules and Regulations shall take effect on 11 December 1981. and (d) The filing of criminal charges against the individuals responsible for the violation. The SEC may. after proper notice and hearing. the SEC shall. Appraised value shall refer to the value of chattel and real property. wherein there is a trustor-trustee relationship under a trust agreement. a trustee for one or more trustors. in the interest of full disclosure and protection of investors and lenders. e. d.31 NEW RULES ON THE REGISTRATION OF LONG-TERM COMMERCIAL PAPERS (Appendix to Subsecs. i. the SEC hereby promulgates the following New Rules and Regulations governing long-term commercial papers. directly or indirectly. net of appraisal surplus. l) Trust accounts shall refer to those accounts with a financial institution authorized by the BSP to engage in trust functions. either on guaranteed or best-effort basis. Q-8 05. Issue shall refer to the creation of commercial paper and its actual or constructive delivery to the payee. Sec. an agent or fund manager for a principal under a fund management agreement. or held with power to vote by another company. of the outstanding voting stock. i. Current market value shall refer to the value of the securities at current prices. For purposes of these Rules. c. 4211Q. to another by means of: 1) Ownership control and power to vote of ten percent (10%). 3) Management contract or any arrangement granting power to direct or cause the direction of management and policies. the following definitions shall apply: a. but not more than fifty percent (50%). in accordance with the monetary and credit policies of the BSP: Section 1. 4) Voting trustee holding ten percent (10%). of the outstanding voting stock.. e. but not more than fifty percent (50%). Definitions. but not more than fifty percent (50%). but not more than fifty percent (50%). Scope. Recomputed debt-to-equity ratio shall refer to the proportion of total outstanding liabilities. Interbank loan transactions shall refer to borrowings between and among banks and quasi-banks.Page 1 . Long-term commercial papers shall refer to evidence of indebtedness of any corporation to any person or entity with maturity period of more than 365 days. controlled. g. as quoted at the stock exchanges. 2. k) Underwriting shall refer to the act or process of distributing and selling of any kind of original issues of long-term commercial papers of a corporation other than those of the underwriter itself. of the outstanding voting stock. as established by a duly licensed and independent appraiser. of the outstanding voting stock. owning ten percent (10%). and any unissued authorized commercial papers to net worth. Net worth shall refer to the excess of total assets over total liabilities. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-8 . and does not include numbered accounts. Affiliate shall refer to a concern linked. These Rules shall apply to long-term commercial papers issued by corporations. Subsidiary shall refer to a company more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned.3) Pursuant to Section 4(b) of the Revised Securities Act and other existing applicable laws. f. including the amount of long-term commercial papers applied for. b.APP.12. j.9 and 4217Q. Specific person shall refer to a duly named juridical or natural person as an investor for its or his own account. 5) Permanent proxy constituting ten percent (10%). 2) Common major stockholders. h. That such unaudited financial statement shall be certified under oath by the accountant and the senior financial officer of the applicant duly authorized for the purpose and substituted with an audited financial statement within 105 days after the end of the applicant's fiscal year. restricted.Appraised value mortgage of 150% 3) Registered chattel mort.APP. 4 hereof. 4. Manual of Regulations for Non-Bank Financial Institutions . Debt to equity The recomputed debt-to-equity to ratio of the applicant based on the financial statements required under Sec. Sworn Registration Statement in the form prescribed by the SEC. as may be required by the SEC. Registration Requirements Any corporation desiring to issue long-term commercial papers shall apply for registration with. 2) Debt-to-equity ratio. the comptroller or principal accounting officer. 1) Securities listed in . hereof shall not exceed 4:1: Provided. or persons performing similar functions. or higher of their equivalent. Collateral The amount of long-term commercial papers applied for is covered by the following collaterals which are not encumbered. 3. b. 3) stating purpose or usage of proceeds thereof. including guarantees. Board resolution signed by a majority of its members 1) authorizing the issue of long-term commercial papers. current receivables to (b) the total of current liabilities. 4) Net profits to sales ratio. 2) indicating the aggregate amount to be applied for. an unaudited financial statement as of the end of the immediately preceding month. The latest audited financial statements and should the same be as of a date more than three (3) months prior to the filing of the registration statements.Current market the stock exchanges value of 200% 2) Registered real estate .c. of 200% machinery.Appraised value gage on heavy equipment. Provided. and 5) designating at least two senior officers with a rank of Vice-President. and similar assets acceptable to the Commission and registrable with the appropriate government agency b. to sign the commercial paper instruments to be issued. based on the following complementary financial ratios for each of the immediate past three (3) fiscal years: 1) Ratio of (a) the total cash.Page 2 compliance with the registration requirements specified in Sec. indicated in relation to the face value of the long-term commercial paper issue. or earmarked for any other purpose and which shall be maintained at their respective values at all times. That the authorized short-term commercial papers do not exceed 300% of net worth and upon Q Regulations Appendix Q-8 . 4. with debt referring to all kinds of indebtedness. the principal financial officer. however. and submit to. The conditions under which the commercial papers of a registrant were registered shall be strictly maintained during the validity of the Certificate of Registration. 4) providing that the registration statement shall be signed by any of the following: the principal executive officer. 3) Ratio of (a) net income after taxes to (b) net worth. as may be prescribed by the SEC.12. Q-8 05. c. marketable securities. Conditions for Registration Long-term commercial papers shall be registered under any of the following conditions: a. Financial Ratios A registrant who meets such standard. the SEC the following: a. c. and 5) Such other financial indicators. Sec. the principal operating officer.31 Sec. from six (6) months to one (1) year. officers. Income statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided. among others. An underwriting agreement for the long-term commercial paper issues with an expanded commercial bank or an investment house. the reportorial requirements under these Rules. That if the underwriting agreement is with a group composed of expanded commercial banks and/or investment houses or any financial institutions which may be qualified subsequently by the BSP. the underwriter shall. not later than two (2) working days prior to the date when the report is due. 6) Other obligations of the applicant classified by maturities .APP. That if the applicant has been in operation for less than three (3) years. stated on the front page of the prospectus. g. or sale is prohibited prior to registration under the Revised Securities Act. or any other financial institution which may be qualified subsequently by the BSP with minimum condition. officers. 8) List of directors. restricted. and stockholders. Schedules A to L based on subsection c above. notify the SEC of such inability on the part of the issuer: Provided. Information contained herein is subject to completion or amendment. among others. there shall be a syndicate manager acting and responsible for the group: Provided.maturing within six (6) months. naming the underwriter and its responsibilities in connection with. and advances to. Q-8 05. indicating any advance to said directors. 5) Provisions in the underwriting agreement. e. 9) List of entities where it owns more than thirty three and one third percent (33 1/3%) of the total outstanding voting stock. the SEC. This preliminary prospectus shall not constitute an offer to buy nor shall there be any sale of these long-term commercial papers in the Philippines as such offer. it being understood that the primary responsibility for the submission of the report to these regulatory agencies is upon the underwriting agreement and thereafter. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-8 . finally. shall contain the following: 1) A statement printed in red on the left-hand margin of the front page. it shall submit income statements for such number of years that it has been in operation. and stockholders owning two percent (2%) or more of the total outstanding voting stock of the corporation. A typewritten copy of a preliminary prospectus approved by the applicant's Board of Directors which. That if the issuer is unable to provide the information necessary to meet such reportorial requirements. further. but has not yet been approved by. and one (1) year and past-due amounts. that the underwriter and the issuer shall be jointly responsible for complying with all reportorial requirements of the SEC and the BSP in connection with the long-term commercial paper issue.Page 3 ." 2) Aggregate maximum amount applied for. 3) Description and nature of the applicant's business. 7) List of assets which are encumbered.12. or earmarked for any other purposes.31 d. the responsibility shall devolve upon this issuer: Provided. 4) Intended use of proceeds. solicitation. to wit: "A registration statement relating to these long-term commercial papers has been filed with. said entities. f. That the underwriter may be changed subject to prior approval by the SEC. as well as borrowings from. in the form attached as Annex "A". These long-term commercial papers may not be sold nor may offers to buy be accepted prior to the approval of the registration statement. however. among others. and profitability. i. the repayment and servicing of which are fully guaranteed by the National Government. in the appropriate case. investment companies. 1051 dated 19 June 1981.Page 4 deducted from the authorized amount and may no longer be reissued even if reacquired in any manner. financing companies. Evidence of indebtedness issued to the following primary institutional lenders: banks. including their trust accounts. Evidence of indebtedness issued by government instrumentalities. investment houses. trust companies. DBP. upon showing that the registrant has strictly complied with the provisions of these Rules and the terms and conditions of the Certificate of Registration. Evidence of indebtedness arising from interbank loan transactions. insurance companies. Close-end Registration Registration of long-term commercial papers under these Rules shall be a closeend process. Sec. Within sixty (60) days after receipt of the complete application for registration. including their trust accounts.31 h. pension and retirement funds approved by the BIR. Action on Application for Registration a. Evidence of indebtedness issued to the BSP under its open market and/or rediscounting operations. Q-8 05. grant the applicant a Certificate of Registration and Authority to Issue Long-Term Commercial Papers valid for one (1) year. indicating the basic assumptions thereto and supported by schedules on actual maturity patterns of outstanding receivables and liabilities (under six (6) months. for each of the immediate past three (3) fiscal years. in consultation with the SEC: Provided. pursuant to the terms and conditions of issue.APP. 7. Long-Term Commercial Papers Exempt Per Se. educational assistance funds established by the national government. d. venture capital corporations. in cases where the requirements of applicable laws and regulations governing the issuance of longterm commercial papers have not been complied with. That all such evidences of indebtedness shall be held on to maturity and shall neither be negotiated nor Manual of Regulations for Non-Bank Financial Institutions . such as on solvency. and LBP. and past-due accounts) and inventory turnover.quasi-banks. Evidence of indebtedness issued by the BSP. f. c.12. non-stock savings and loan associations. e. over one (1) year. or for reasons which shall be so stated. six (6) months to one (1) year. The following specific long-term debt instruments are exempt per se from the provisions of these Rules: a. whenever it deems necessary. the SEC shall act upon the application and shall. pawnshops. Sec. liquidity. whereby the portion of the authorized amount already issued shall be Q Regulations Appendix Q-8 . The SEC may. 6. Evidence of indebtedness issued by the national and local governments. b. impose other requirements in addition to those enumerated above. as may be prescribed by the SEC. which may be renewed annually with respect to the unissued balance of the authorized amount. building and loan associations. government financial institutions. b. Projected annual cash flow statement presented on a quarterly basis as of the approximate date of issuance for a period co-terminus with the life time of the issue. 5. PNB. special purpose corporations referred to in Central Bank Monetary Board Resolution No. Sec. Data on financial indicators. and other entities that may be classified as primary institutional lenders by the BSP. The SEC shall return any application for registration. Sec. 4(f) of the Rules on Registration of ShortTerm Commercial Papers. the applicable BSP rules and regulations governing the performance of quasibanking functions. in accordance with the Rules on Registration of Long-Term Commercial Papers and Bonds dated 15 October 1976 and with outstanding long-term commercial papers falling under this subsection as of the effectivity date hereof. Evidence of indebtedness denominated in foreign currencies. but shall be subject to the payment of the exemption fee. holders of such papers exempt under Sec. and 2) Indicate in bold letters on the face of the instrument the words "NONNEGOTIABLE. as amended. Long-term commercial papers fully secured by debt instruments of the National Government and the BSP and physically delivered to the trustee in the Trust Indenture. Other Long-Term Commercial Papers Exempt from Registration. with respect to private development banks in connection with their rediscounting privileges. Sec. further. There shall be no pretermination of long-term commercial papers either by the issuer or the lender within 730 days from issue date. b. Evidence of indebtedness. NON-ASSIGNABLE": and Provided. 8. and (2) a quarterly report on such borrowings in the forms prescribed by the SEC. h.12. the total outstanding amount of which does not exceed P15. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-8 . and to the reportorial requirements under Section 15 of these Rules: a. and shall neither be negotiated nor assigned but held on to maturity: Provided. and financial intermediaries with quasibanking functions.Page 5 . That any issuer. Long-term commercial papers issued by a financial intermediary authorized by the BSP to engage in quasibanking functions.0 million shall include outstanding short-term commercial papers: Provided. if so stipulated in the loan agreement. No long-term commercial papers shall be issued. 9. g.0 million and issued to not more than fifteen (15) primary lenders other than those mentioned in subsection (f) above. finally. Sec. b. Prohibitions a. partial installments. and i. That in reckoning compliance with the number of primary lenders under this Section. Q-8 05. as prescribed under Section 14. however. The following long-term commercial papers shall be exempt from registration under Secs. shall be counted: Provided. or a waiver of. shall likewise file the prescribed disclosure statement and the quarterly report on such borrowings. Evidence of indebtedness arising from bona fide sale of goods or property. 3 and 4 hereof. Pretermination shall include optional redemption. or negotiated or assigned unless the requirements of these Rules shall have been complied with: Provided.APP. and the DBP. That no registered long-term commercial paper issuer may issue long-term commercial paper exempt per se under Section 7(g) hereof. and not to bearers. That the aggregate amount of P15. Any violation of said BSP rules and regulations shall be considered a violation of these Rules. furthermore. 10. That such issuer shall: 1) File (1) a disclosure statement prior to the issuance of any evidence of indebtedness. Compliance with Bangko Sentral Quasi-Banking Requirements Nothing in these Rules shall be construed as an exemption from. installment and amortization payments may be allowed. which evidence of indebtedness shall be payable to specific persons. and amortization payments.31 assigned to any one other than the BSP. 12. Whenever necessary to implement the monetary and credit policies promulgated from time to time by the Monetary Board of the BSP.000. 14. Basic Features of Registered Commercial Papers a. Sec. All registered commercial paper instruments shall have a standard format. b. Up to two years P100.Page 6 submitted in connection with the registration. 13. it shall be the responsibility of the issuer to notify the SEC that it failed to pay in full any interest due on. The underwriter shall. Sec. but not to exceed P75. and the SEC shall forthwith issue a formal Cease-and-Desist Order enjoining both the issuer and the underwriter from further issuing or underwriting long-term commercial papers. to be submitted within ten (10) working days following the end of the reference month. 11. c. b. an annual exemption fee of P10. the Authority to Issue Long-Term Commercial Papers shall be automatically suspended. and denominated. Issuers of registered long-term commercial papers. the debt ceiling of the registrant and a notice that information about the registrant Q Regulations Appendix Q-8 . long-term commercial paper upon demand at stated maturity date and has accordingly automatically suspended the issuance of its long-term commercial papers. shall submit the following reports in the form prescribed by the SEC: 1) Monthly reports on long-term commercial papers outstanding as at the end of each month. Within the next working day. notify the SEC thereof. The instrument shall state. c. Fees. The instrument approved by the SEC shall be printed by an entity authorized by the SEC and shall be released by the SEC to the issuer. serially pre-numbered. and that the issuer is not authorized by the BSP to perform quasi-banking functions. a filing fee of 1/20 of one percent 1% based on total commercial paper proposed to be issued. the SEC shall forthwith issue a formal Cease-and-Desist Order enjoining the issuer from further issuing long-term commercial papers. Four years or more 20.31 Sec. Periodic Reports a. or reduce the authorized amount thereunder. Manual of Regulations for Non-Bank Financial Institutions . should the issuer fail to pay in full any interest due on or principal of long-term commercial paper upon demand at stated maturity date. During the effectivity of the underwriting agreement.000 Sec. Every registrant shall pay the following fees: a. and other reportorial requirements from the issuer is available at the SEC and open to public inspection.000. among others. For issuers of commercial papers exempt under Section 8 hereof.000 b. Over two years but less than four years 50. Minimum Principal Amount The minimum principal amount of each registered long-term commercial paper instrument shall not be lower than the amounts indicated in the following schedule: a. Q-8 05. or schedule the maturities of the registered long-term commercial paper to be issued. A specimen of the proposed commercial paper instrument shall be submitted to the SEC for approval of the text thereof. Sec. 15.000 c. within the next working day. b.APP. or principal of. the SEC may suspend the authority to issue long-term commercial paper. Conditions of the Authority to Issue Long-Term Commercial Papers a.12. Upon application for registration. Upon the expiration of the underwriting agreement. through their underwriters and those exempt under Section 8 hereof. Repealing Clause. memoranda circular of the SEC. in a registration statement and its supporting papers. The SEC may. on its own motion or upon verified complaint by an aggrieved party. Immediately upon the issuance of an ex-parte Cease-and-Desist Order. b. plus not more than P500 for each day of continuing violation.12. Administrative Sanctions If the SEC finds that there is a violation of any of these Rules and Regulations and implementing circulars. or that any issuer. Other penalties within the power of the SEC under existing laws. These Rules and Regulations supersede the Rules on Registration of Long-Term Commercial Paper and Bonds dated 15 October 1976 and all the amendments to said Rules except as provided in Section 19 hereof.APP. c. These periodic reports shall be signed under oath by the corporate officers authorized. the SEC shall. or refuses to permit any lawful examination into its corporate affairs. as well as in the periodic reports required to be filed with the SEC and the BSP. or to impose the administrative sanctions provided for in Section 16 not later than fifteen (15) days after receipt of notice. are likewise hereby repealed or modified accordingly.31 2) Quarterly reports on long-term commercial paper transactions. 18. however. The filing of criminal charges against the individuals responsible for the violation. and 3) Actual quarterly cash flow statement. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-8 . d. and d. Q-8 05.000 for each violation. issue a Cease-and-Desist Order ex-parte. b. in its discretion. impose any or all of the following sanctions: a. orders. pursuant to a board resolution previously filed with the SEC. A fine in accordance with the guidelines that the SEC shall issue from time to time: Provided. c. Sec. Annex "B" hereof shall initially be the guidelines on the scale of fines. 16. if the violation(s) mentioned in Section 16 hereof may cause great or irreparable injury to the investing public. until after the imposition of the sanctions mentioned in Section 16 hereof shall have become final and executory. which are inconsistent herewith. c. the SEC shall notify the parties involved. or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The issuance of such Cease-andDesist Order automatically suspends the Authority to Issue Long-Term Commercial Paper. after proper notice and hearing. That such fine shall in no case be less than P200 nor more than P50. submit their reports to the nearest extension office of the SEC. All other rules. regulations. Sec. of the Certificate of Registration and Authority to Issue Commercial Paper. Suspension or revocation. has made any untrue statement of a material fact. Issuers whose offices are located in the provinces may. 17. Cease-and-Desist Order a. accompanied by an interim quarterly financial statement to be submitted within thirty (30) calendar days following the end of the reference quarter.Page 7 . b. through their underwriters. Such Cease-and-Desist Order shall be confidential in nature. Sec. or will amount to palpable fraud or violation of the disclosure requirements of the Revised Securities Act and of these Rules and Regulations. to be submitted within ten (10) working days following the end of the reference quarter. and schedule a hearing on whether to lift such order. valid and subsisting as of the date of the effectivity of these Rules.12. 19. granted under the Rules on Registration of Long-Term Commercial Papers dated 15 October 1976. shall remain valid with respect only to all outstanding issue until such issues are retired or redeemed. These Rules and Regulations shall take effect fifteen (15) days after publication in two newspapers of general circulation in the Philippines. Note: Annexes "A" and "B" are not reproduced in this Appendix. Transitory Provision a. 20. The SEC may. authorize issuance of any unissued portion Q Regulations Appendix Q-8 .APP. at its discretion and subject to such conditions it may impose.31 Sec. Effectivity. b. Q-8 05. (Ed. Sec.) Manual of Regulations for Non-Bank Financial Institutions . Any authority or Certificate of Exemption to Issue Long-Term Commercial Papers.Page 8 of the issuer's approved long-term debt ceiling solely for refinancing of maturing long-term commercial paper issue for a period not beyond fifteen (15) months from the effectivity date of these Rules. 12.APP. 12th and 1st Series 9th . 4% NPC Bonds (26th . 78th-93rd S) Treasury Bonds with less than 4% per annum interest considered eligible by reason of expressed BSP limited support to original purchaser: 2% T/Bond L of 1973/2003 1st Series (1st & 2nd Release) 3% T/Bond L of 1978/2008 55th Series (1st Release) 4% T/Bond L of 1979/2009 55th Series (2nd Release) 3-¼% T/Bond L of 1974/1999 6th Series (1st-2nd Release) 3-¼% T/Bond L of 1978/2003 54th Series (1st--3rd Release) d. they shall be replaced by securities carrying the features/ conditions enumerated under Circular No.1) A. Bonds and other evidences of indebtedness bearing interest rate of four percent (4%) per annum. if being used by banks/ quasi-banks as reserve against deposit substitute liabilities as of 17 January 1977 shall continue to be eligible as such: Provided. 638. 4% Treasury Notes L of 1980/1995 115th Series e. dated 8 November 1978. 59th-71st S.PNB only 2.Page 1 . 4% Treasury Bonds (30th S. Bonds made specifically eligible to its holders only: 4% Treasury Capital Bonds -. Direct obligations of the Government of the Republic of the Philippines eligible as reserve against peso deposit liabilities and deposit substitute liabilities: a. 57th S. which bear 6% obligation assumed by the National Government) c. 4246Q.11th Series 3rd .ELIGIBLE AND NON-ELIGIBLE SECURITIES (Appendix to Subsec.8th Series Q Regulations Appendix Q-9 . The following government securities bearing more than four percent (4%) per annum interest.22nd Series All outstanding issues -do-do7th Series 9th Series 8th Series All outstandingissues except 15th Series All outstanding issues 60th . political subdivisions and instrumentalities likewise eligible as reserves against peso deposit liabilities and deposit substitute liabilities: 4% NAWASA Bonds (1st to 9th &13th Series) 3. issued by government-owned or controlled corporations. That whenever said securities shall have matured. whether Bangko Sentral supported or not. Q-9 05.Government securities ELIGIBLE as reserves 1.DBP only 2% Capital Treasury Bonds -.31 LIST OF RESERVE .65th Series 101st Series (1st & 2nd Release) 56th and 61st Series 59th Series 11th. 4% PWED Bonds all outstanding series b.50th Series except 39th Ser. as amended: 6% 6% 7% 8-½% 7% 6% 4½% 4 710 % 5% 6% 7% PWED Bonds NPC Bonds NPC Bonds NPC Bonds MWSS Capital BondsNIA Bonds Treasury Bonds Treasury Bonds Treasury Bonds Treasury Bonds Treasury Bonds - 10-¾% Treasury Bonds 9% Treasury Notes 10-½% Treasury Notes - 10-¾% 11-¼% 6% 10% 10-¾% - Treasury Notes Treasury Notes NAWASA Bonds EPZA Bonds EPZA Bonds Manual of Regulations for Non-Bank Financial Institutions All outstanding issues -do -do 3th . Page 2 2-¾%T/Bond L of 1974/1986 7-A & 7-B Series 3% T/Bond L of 1976/2001 26th.32nd Series Central Bank Bills (Negotiated/discounted) Treasury Bills (Negotiated/discounted) Treasury Notes and Treasury Bonds bearing less than four percent (4%) per annum. Q-9 05. 27th. 31st 34th.31 B.12. 46th & 47th Series 3% T/Bond L of 1977/2002 49th Series 3-¼%T/Bond L of 1974/1999 6th Series 3rd & 4th Release 3-¼%T/Bond L of 1977/2002 6th Series 5th Release 3-¼%T/Bond L of 1975/2000 21st Series 1st Release 3-¼%T/Bond L of 1977/2002 21st Series 2nd Release 3-¼%T/Bond L of 1977/2002 51st Series 1st & 2nd Release 3-¼%T/Bond L of 1978/2003 54th Series 1st & 34th Release 3-¼%T/Bond L of 1980/2005 58th Series 3-¾%T/Bond L of 1973/2003 2nd Series Treasury Notes 2% 3% 3% T/Notes L of 1976/1991 79th Series T/Notes L of 1982/1997 128th Series T/Notes L of 1981/1986 120th Series & 125th Series 3-½%T/Notes L of 1982/1997 Special Series 1st-24th Release Manual of Regulations for Non-Bank Financial Institutions . The following government securities are not eligible whatsoever for reserve purposes: Negotiable Land Certificate (NLC) Cultural Center of the Philippines (CCP) Bonds Philippine Charity Sweepstakes Office (PCSO) Bonds Public Estate Authority (PEA) Bonds National Development Company (NDC) Bonds National Housing Authority (NHA) Bonds National Food Authority (NFA) Bonds NHMFC Bahayan Certificates Light Rail Transit Authority (LRTA) Notes CBCIs (Auctioned/discounted) .APP. but not given BSP support as follows: Treasury Bonds 2% T/Bond L of 1973/2003 4th Series Q Regulations Appendix Q-9 .24th -29th Series CBCIs (Negotiated) A to D-1Series and 5th to 7th Series (18 months) CBCIs 10-½% Special Series 1st . APP. Loans with technical defects and deficiencies in documentation and/or collateral requirements. e. may affect the repayment of the loan and thus increase credit risk to the QB. Loans especially mentioned. B. Loans or portions thereof secured by hold-outs on deposit substitutes maintained in the lending institutions. margin deposits. Unclassified loans.12. Loans secured by property the title to which bears an uncancelled annotation or lien or encumbrance. shall not be subject to classification: 1. These potential weaknesses. (2) substandard. The following loans. c. d. g. deficiencies which remained uncorrected in the following examination shall be classified as “Loans Especially Mentioned”. Classified loans. The following are examples of loans to be cited under “Miscellaneous Exceptions – Loans”: a. Loans with improperly executed supporting deed of assignment/pledge agreement/chattel mortgage/real estate mortgage. 4302Q) I. availments in excess of credit line. and i. Classification of loans. Loans with collaterals not insured or with inadequate/expired insurance policies or the insurance policy is not endorsed in favor of the QB. (3) doubtful. These are loans which possess the characteristics outlined hereunder.Page 1 . Loans granted without compliance with conditions stated in the approval. Loans with unregistered mortgage instrument which is not in compliance with the loan approval. and (4) loss. b. Q-10 08. 1. Loan availments against expired credit line. the same should be qualitatively appraised and grouped as Unclassified or Classified. These exceptions should be brought to management’s attention for corrective action during the examination and those not corrected shall be included in the Report of Examination under “Miscellaneous Exceptions – Loans”. h. 2. or government-supported securities. Classified loans are subdivided into (1) loans especially mentioned. These are loans that have potential weaknesses that deserve management’s close attention. In addition to classifying loans as either current or past due. Loans granted beyond the limits of approving authority. The borrower has the apparent ability to satisfy his obligations in full and therefore no loss in ultimate collection is anticipated. These are loans that do not have a greater-than-normal risk and do not possess the characteristics of classified loans as defined below. among others. These deficiencies are isolated cases where the exceptions involved are not material nor is the QB’s chance to be repaid or the borrower’s ability to liquidate the loan in an orderly manner undermined. Loans with collaterals not covered by appraisal reports or appraisal reports not updated. Their basic characteristics are as follows: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-10 . A.31 GUIDELINES IN IDENTIFYING AND MONITORING PROBLEM LOANS AND OTHER RISK ASSETS AND SETTING UP OF ALLOWANCE FOR PROBABLE LOSSES (Appendix to Sec. availments against credit line without prior approval by appropriate authority. Moreover. f. if left uncorrected. Loans with unnotarized mortgage instruments/agreements. APP. (2) Loans which are exempted from the additional documentary requirements under Subsec. Q-10 08. Those classified as “Substandard” must have a well-defined weakness or weaknesses that jeopardize their liquidation. Secured loans (1) Past due and circumstances are such that there is an imminent possibility of foreclosure or acquisition of the collateral because of failure of all collection efforts. salary loans and loans for personal consumption. For this purpose. There exists in such loans the possibility of future loss to the institution unless given closer supervision. title papers. Loans to borrowers whose properties securing the loan (previously well-secured by collaterals) have declined in value or with other adverse information. Loans to firms not supported by board resolutions authorizing the borrowings. Their basic characteristics are as follows: a. 4312Q. b. or a significant weakness in collateral. That these loans are current. household appliance(s). loans for purchase of car. b. illiquidity. These are loans or portions thereof which appear to involve a substantial and unreasonable degree of risk to the institution because of unfavorable record or unsatisfactory characteristics. and Q Regulations Appendix Q-10 . furniture and fixtures. 2. Loans without credit investigation report.0 million: Provided.12. Loans past due for more than thirty (30) days up to ninety (90) days. or increasing leverage trend in the borrower’s financial statements without at least twenty percent (20%) repayment of the principal before renewal or extension. f.1 except: (1) consumer loans. and (2) Current loans to borrowers with unfavorable results of operations for two (2) consecutive years or with impaired/ Manual of Regulations for Non-Bank Financial Institutions . c. Loans the repayment of which may be endangered by economic or market conditions that in the future may affect the borrower’s ability to meet scheduled repayments as evidenced by a declining trend in operations. and (3) Current loans to borrowers whose AFSs show impaired/negative net worth except for start-up firms which should be evaluated on a case-to-case basis. Loans previously cited as Miscellaneous Exceptions still uncorrected in the current BSP examination. managerial. consumer loans is defined to include housing loans.31 a. Such well-defined weaknesses may include a d v e r s e trends or development of financial. d. but not limited to.Page 2 h. Substandard. at the time they were granted. Loans with unlocated collateral folders and documents including. and are supported by latest ITR or by BIR Form 2316 or payslips for at least three (3) months immediately preceding the date of loan application. economic or political nature.1 e. 4312Q. illiquidity. loans for payment of educational and hospital bills. with original amounts not exceeding P2. Loans not supported by the documents required under Subsec. mortgage instruments and promissory notes. as may be applicable. including credit card loans. restructured or extended. (2) Past due loans to borrowers whose properties securing the loan have declined in value materially or have been found with defects as to ownership or other adverse information. and financial statements submitted for taxation purposes to the BIR. or increasing leverage trend in the borrower’s financial statements. renewed. Unsecured loans (1) Renewed/extended loans of borrowers with declining trend in operations. g. Loans wherein the possibility of loss is extremely high but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset. e. or have current unfavorable credit information which renders collection of the loans highly improbable. and d. d. unless the loan is well secured. b. Their basic characteristics are as follows: a. and other chattels without the borrower offering additional collateral for the loans and previously classified “Substandard” in the last BSP examination. c. Doubtful. Loans with unsigned promissory notes or signed by unauthorized officers of the borrowing firm. e. or his earning power is permanently impaired and his co-makers or guarantors are insolvent or that their guaranty is not financially supported. and values make collection or liquidation in full highly improbable and in which substantial loss is probable. Loans under litigation. with the added characteristics that existing facts. Their basic characteristics are as follows: a. the title to which is subject to an adverse claim rendering settlement of the loan through foreclosure doubtful. f. Loans classified as “Loans Especially Mentioned” in the last BSP examination which remained uncorrected in the current examination. The amount of loss is difficult to measure and it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be obtained in the future. equipment. Where the collaterals securing the loans are considered worthless and the borrower and/or his co-makers are insolvent. Past due loans secured by real estate mortgage. Loans past due for more than ninety (90) days. 3. Loans payable in installments where amortization applicable to interest is past due for a period of six (6) months. b. d. Loans granted without requiring submission of the latest AFS/ITR and/or statements of assets and liabilities to determine paying capacity of the borrower. Loans considered as absolutely uncollectible.12. These are loans or portions thereof which have the weaknesses inherent in those classified as “Substandard”. Loans classified as “Doubtful” in the last BSP examination and without any payment of interest or substantial reduction of principals during the succeeding twelve (12) months.31 negative net worth except for start-up firms which should be evaluated on a case-tocase basis. and f. Past due loans secured by collaterals which have declined in value materially such as.APP. c. or he is insolvent. receivables. 4. conditions.Page 3 . and g. Q-10 08. Past due clean loans classified as “Substandard” in the last BSP examination without at least twenty percent (20%) repayment of principal during the succeeding twelve (12) months or with current unfavorable credit information. its classification as an estimated loss is deferred until a more exact status is determined. inventories. Past due clean loans the interest of which is unpaid for a period of six (6) months. c. These are loans or portions thereof which are considered uncollectible or worthless and of such little value that their continuance as bankable assets is not warranted although the loans may have some recovery or salvage value. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-10 . When the borrower’s whereabouts is unknown. Loss. Investment in debt securities and marketable equity securities. Foreclosure expenses and other charges included in the book value of the property. Converted into a Sales Contract Receivable. The classification. Management may therefore formulate additional specific guidelines. If cost is greater than book value. The excess of the book value over the appraised value. Because of their nature. that is. Q-10 08. b. C. II. Property wherein the exercise of the right of usufruct is not practicable or possible as when it is eroded by a river or is under any like circumstances. their immediate disposal through sale is highly recommended.12. The basic characteristics of real estate property acquired subject to "Loss" classification are as follows: a. excluding the amount of nonrefundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase which meet the criteria for inclusion in the book value of the acquired property. Sold subject to a firm purchase commitment from a third party before the close of the examination. Acquired for less than five (5) years unless worthless. Credit card receivables. b. Credit card receivables shall be classified in accordance with age as follows: No. the impairment should adequately be provided with allowance for probable losses. Acquired or repossessed personal property 1. c. non-liquid and non-productive. 2. D. The basic characteristics of acquired or repossessed personal property classified as Loss are as follows: a.Page 4 2. Foreclosure expenses and other charges included in the book value of the property. accounting procedures. if there is an impairment in the recorded value. Manual of Regulations for Non-Bank Financial Institutions . of days past due 91 . and e. Property which is worthless or not saleable. Property whose title is lost or is being contested in court. Other property owned or acquired 1. Real estate property acquired are not sound bank assets. B. The excess of the book value of the property over its appraised or realizable value. The basic characteristics of real estate property acquired subject to "Substandard" classification are as follows: a. c. Equity investment in affiliates shall be booked at cost or book value whichever is lower on the date of acquisition. d. All personal property owned or acquired held for three (3) years or less from date of acquisition shall be classified as Substandard assets. Investments and Other Risk Assets A. b.APP.180 181 or more Classification Substandard Doubtful Loss The foregoing is the minimum classification requirement. valuation and sales and transfers of investment in all debt securities and marketable equity securities is in Appendix Q-20.120 121 . Subsequent to acquisition.31 C. Property whose title is definitely lost to a third party or is being contested in court. the excess shall be charged in full to operations or booked as deferred charges and amortized as expense over a period not exceeding five (5) years. d. Q Regulations Appendix Q-10 . c. Property not sold for more than three (3) years from date of acquisition. General allowance. Accounts receivable arising from loan and investment accounts still uncollected after six (6) months from the date such loans or loan installments have matured or have become past due shall be provided with a 100% allowance for uncollected accounts receivable. Allowance for probable losses. Five percent (5%) of the outstanding balance of unclassified restructured loans less the outstanding balance of restructured loans which are considered non-risk under existing laws. In addition to the allowance for probable losses required under Item "A". Q-10 08. An allowance for probable losses on the loan accounts should be set up as follows: A. Substandard (a) Secured (b) Unsecured 0 5 10 25 4. Specific allowance Classification Allowance (Percent) 1. Accrued interest receivable on loans or loan installments still uncollected after three (3) months from the date such loans or loan installments have matured or have become non-performing shall be provided with a 100% allowance for uncollected interest on loans. III. All other accrued interest receivable on loans or loan installments shall be classified similar to the classification of their respective loan accounts. their classification should be tempered by favorable information gathered in the review. All other accounts receivable should be classified in accordance with age as follows. rules and regulations. 2. Loans Especially Mentioned 3.Page 5 .180 181 .12. unless there is good reason for non-classification: No. Loss 50 100 B. rules and regulations. 2. of Days Outstanding Classification 61 . Accounts Receivable 1. Accrued Interest Receivable 1. One percent (1%) of the outstanding balance of unclassified loans other than restructured loans less loans which are considered non-risk under existing laws. Doubtful 5. The general loan loss provision shall be computed as follows: For Loans Not Restructured Gross Loan Portfolio (Excluding Restructured Loans) Less:Classified Loans (based on latest BSP examination) Loans especially mentioned Substandard Secured Unsecured Doubtful Loss Unclassified Loans Less: Loans considered non-risk under existing regulations Loan Portfolio. a general provision for loan losses shall also be set up as follows: 1. F. net of exclusions General Loan Loss Provision (5% of net restructured loans) Pxxx P xxx xxx xxx xxx xxx xxx Pxxx xxx Pxxx Pxxx Pxxx Pxxx xxx xxx xxx xxx xxx Pxxx xxx Pxxx Pxxx The excess of the booked general loan loss provisions over the amount required Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-10 . net of exclusions General Loan Loss Provision (1% of net loan portfolio) For Restructured Loans Restructured Loans (Gross) Less: Classified Loans (based on latest BSP examination) Loans especially mentioned Substandard Secured Unsecured Doubtful Loss Unclassified Restructured Loans Less: Loans considered non-risk under existing regulations Restructured Loans.360 361 or more Substandard Doubtful Loss The classification according to age of accounts receivable should be used in classifying other risk assets not covered above. and 2.APP. Unclassified 2. However.31 E. That in cases of partially secured loans. 622 dated 16 September 2008. 549 dated 09 October 2006 and 520 dated 20 March 2006) Manual of Regulations for Non-Bank Financial Institutions . Q-10 08.31 as a result of the reduction of the amount required to be set up to one percent (1%) shall first be applied to unbooked specific valuation reserves.APP.12. further. (As amended by Circular Nos. That said collateral is reappraised at least annually. however. encouraged to provide additional allowance as it deems prudent and to formulate additional specific guidelines within the context of the hereindescribed system.Page 6 percent (10%) allowance shall be required for the portion thereof which are covered by the appraised value of the collateral: Provided. Management is. only ten Q Regulations Appendix Q-10 . The specific and general allowances for probable losses shall be adjusted accordingly for additional allowance required by the BSP: Provided. whether or not authorized to be booked on a staggered basis and only the remainder can be considered as income. d. 4309Q. Non-Finance Charges [Advanced by Seller/Creditor]: a.Page 1 . Amount to be Financed (Items 3 + 4) Manual of Regulations for Non-Bank Financial Institutions P Q Regulations Appendix Q-11 .2) (Business Name of Creditor) DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT OR INSTALLMENT PLAN) (As required under R.31 FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (Appendix to Subsec. LESS: 3. Q-11 05. b. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan 4. c. Downpayment and/or Trade-in Value (Not applicable for loan transaction) Insurance Premium Taxes Registration Fees Documentary/Science Stamps Notarial Fees Others: P Total Non-Finance Charges 5.A. 3765.APP. e.12. f. Truth in Lending Act) Name of Borrower Address 1. Cash/Purchase Price or Net Proceeds of Loan P (Item Purchased) 2. h. from to [ ] Simple [ ] Compound b. d. 4309Q. Q-11 05. Q Regulations Appendix Q-11 .APP.1) Effective Interest Rate (Method of computation attached) % Payment a.a.31 6. 9. Total Installment Payments (Payable in weeks/months @ P ) % P P * Time price differential should be disclosed as a finance charge. [ [ [ [ P ] Monthly ] Quarterly ] Semi-Annual ] Annual Discounts Service/Handling Charges Collection Charges Credit Investigation Fees Appraisal Fees Attorney's/Legal Fees Other charges incidental to the extension of credit (specify): Total Finance Charges 7.Page 2 Manual of Regulations for Non-Bank Financial Institutions . Finance Charges* a. c. g. a lump-sum figure may be reported among Other charges incidental to the extension of credit in Item 6h. If an itemization cannot be made. Interest % p. e. f.12. Single Payment due (Date) b. 8. P Percentage of Finance Charges to Total Amount Financed (Computed in accordance with Subsec. Additional charges in case certain stipulations in the contract are not met by the debtor: Nature Rate Amount CERTIFIED CORRECT: (Signature of Creditor/Authorized RepresentativeOver Printed Name) Position I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF. (Signature of Buyer/Borrower Over Printed Name) DATE NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN.31 10.APP.Page 3 . Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-11 . Q-11 05.12. As used in this Act. to the extent applicable and in accordance with rules and regulations prescribed by the Board. individually itemized. Sec. service charges. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction. which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit. Approved. except that such liability shall not exceed P2. (6) the finance charge expressed in terms of pesos and centavos. Any creditor shall furnish to each person to whom credit is extended. This Act shall be known as the "Truth in Lending Act. Declaration of Policy. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-12 . June 22.12. This Act shall become effective upon approval.APP. the following information: (1) the cash price or delivered price of the property or service to be acquired.4) Section 1. whichever is the greater. fees. 6. to be credited as down payment and/or trade-in. xxxx xxxx xxxx Sec. 2.31 ABSTRACT OF "TRUTH IN LENDING ACT" (Republic Act No. xxxx xxxx xxxx (d) Any final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto. xxxx xxxx xxxx Sec. (3) the difference between the amounts set forth under clauses (1) and (2).000 or imprisonment for not less than 6 months nor more than one year or both.000 on any credit transaction. (4) the charges. (2) the amounts. and (7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. a clear statement in writing setting forth. 4. 3765) (Appendix to Subsec. and such other charges incident to the extension of credit as the Board may by regulation prescribe. if any. 3. 7. It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. xxxx xxxx xxxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1. 4309Q. prior to the consummation of the transaction. xxxx xxxx xxxx Sec. Q-12 05. discounts. the term xxxx xxxx xxxx (3) "Finance charge" includes interest. (5) the total amount to be financed.000 nor more than P5." Sec.Page 1 . 1963. 1) (As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/ RBAP/IHAP and MMAP) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-13 .31 AGREEMENT FOR THE ENHANCED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM (Appendix to Subsecs.APP. Q-13 08.Page 1 .12. 4376Q.1 and 4601Q. APP.31 SETTLEMENT PROCEDURES FOR INTERBANK LOAN TRANSACTIONS AND PURCHASE AND SALE OF GOVERNMENT SECURITIES UNDER REPURCHASE AGREEMENTS WITH THE BANGKO SENTRAL (Appendix to Subsecs.4 and 4601Q.12. Q-13a 08.1) (As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/ RBAP/IHAP and MMAP) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-13a . 4376Q.Page 1 . Eligible Participant QBs with insufficient balances in its Demand Deposit Account No. QBs without RoSS securities accounts who intend/desire to avail of the ILF shall be required to open/maintain a Securities Account with the RoSS.1 and 4601Q. Flexibility in changing the securities that will be used for the ILF. The delivered GS to be used for ILF purposes shall be recorded by RoSS in a sub-account (the “Client Securities Account (CSA)”-ILF) under the BSP-ILF Securities Account in the name of the Eligible Participant QB. Scripless Securities Registration Division. The Eligible Participant QB hereby confirms to the BTr that pursuant to an ILF availment. and the proceeds of the sale of securities shall be immediately credited to the bank’s PhilPaSS Account. and c. the BTr RoSS shall electronically submit a consolidated report to BSP showing the details of the GS that were transferred to the BSP-ILF Securities Account. the Eligible Participant QB with insufficient balance in its PhilPaSS Account will automatically sell to the BSP-Treasury the GS in the CSA-ILF pool corresponding to the amount which may be needed to cover any pending payment instruction. an Eligible Participant QB shall electronically instruct the BTr to move/ transfer from its Principal Securities Account with the BTr’s ROSS to the CSA-ILF under the name of the Eligible Participant QB. Liability Management Service and the Chief. the pool of peso-denominated GS to be set aside for the ILF purpose. Eligible Participant QBs may avail of the ILF as necessary to fund pending payment instructions. There may be more than one availment during the day. Timeline From 9:00 am to 9:30 am of each banking day. The application letter shall be in the form of Annex 1 hereto. 4376Q.31 ENHANCED INTRADAY LIQUIDITY FACILITY (Appendix to Subsecs. Until a sale to the BSP or an Overnight Repo (O/N-RP) transaction with the BSP is Manual of Regulations for Non-Bank Financial Institutions Q-Regulations Appendix Q-13b . From 10:00 am to 4:00 pm. QBs desiring to avail of the ILF shall be further required to open a sub-account under the BSP-ILF Securities Account with the BTr’s RoSS by accomplishing an application letter addressed to the Treasurer of the Philippines.Page 1 . the current features of the Intraday Liquidity Facility (ILF) had been enhanced.12. b.2 (PhilPaSS Account) may avail of the ILF. Removal of commitment fees The revised features of the ILF are described below. Q-13b 08.APP. B. when the ILF system detects queued transactions in the PhilPaSSCentral Accounting System. A. The documentation requirements for RoSS membership shall be prescribed by the BTr. it has authorized the transfer without consideration unto the CSAILF the pool of GS to be used for ILF purposes. Access to ILF Government securities (GS) held by an Eligible Participant QB in its Regular Principal Securities Account that will be used for ILF purposes shall be delivered to a sub-account under the BSP-ILF Securities Account with the Bureau of the Treasury’s (BTr) Registry of Scripless Securities (RoSS).1) Given the increasing volume of PhilPaSS transactions as well as concerns of having temporary gridlocks in the PhilPaSS. Thus. Availment of the facility on an “as the need arises” basis. specifically on the following areas: a. From 9:30 am to 10:00 am. Attn: The Director. The O/N-RP shall be paid not later than 11:00 am on maturity date.Page 2 Department shall electronically instruct RoSS.ILF c. Unpaid O/N-RP shall be automatically converted into an absolute sale to the BSP of the subject GS earlier delivered/ transferred to the CSA-ILF. the BSP and the participating QB may agree on the following: a. Upon receipt of BSP’s electronic instruction for the return of GS back to the participating QBs’ regular Principal Securities Accounts. Eligible Securities Peso-denominated scripless securities of the National Government that are free and unencumbered and with remaining maturity of eleven (11) days to ten (10) years shall be eligible for the ILF. GS used for O/N-RP shall remain in the CSA-ILF until repayment of subject O/N-RP or conversion to outright sale the following day. Partial repayment of a particular availment will not be allowed. to return/deliver from the CSA-ILF of the participating QBs to their respective Regular Principal Securities Accounts with the RoSS all unused/ unencumbered GS. Valuation of Securities The GS subject of an ILF transaction shall be valued based on the 11:16 am fixing rates of the previous business day. Q-13b 08. Held for Trading b. Available for Sale Available for Sale . pursuant to an ILF availment by the Eligible Participant QB. C. Only in extreme cases. At the end of the day and after BSP’s sell-back of the GS to ILF participants. using the ILF RoSS system developed for herein purpose. the BTr shall update their database after which participating QBs may request/download statements of securities accounts for their verification. from the applicable Reuters PDEX pages or any other valuation benchmark as may be prescribed by the BSP. GS that will be used for ILF purposes would be reclassified with due consideration to the original booking of the security. BSP shall issue an instruction to BTr to deliver/transfer the subject GS from the BSP-ILF Securities Account to the BSP regular Principal Securities Account. the BSP Treasury Q-Regulations Appendix Q-13b . The BSP shall issue an instruction to the BTr to transfer the remaining GS amounting to the unpaid ILF availment from the BSP-ILF Securities Account to the BSP’s Regular Principal Securities Account. In case the PhilPaSS Account balance of the participating QB is not sufficient to cover the afternoon repayment transaction. Designated Fair Value Through Profit or Loss To be reclassified to Held for Trading – ILF Designated Fair Value Through Profit or Loss . the BSP shall sell back to the Eligible Participant QB the GS at the same price as the original BSP purchase. the BSP shall sell back to the participating QBs GS up to the extent of the PhilPaSS Account balance. The sale shall be evidenced by the issue of Confirmation of Sale by the Eligible Participant QB (Annex 2) and the Confirmation of Purchase by the BSP Treasury Department (Annex 3).ILF d.APP. in which case. or.ILF D. Held to Maturity Held to Maturity .12. normally by 5:45 pm. the beneficial ownership of the GS that have been transferred to the CSAILF still belongs to the QBs. BSP shall extend to the Eligible participant QB an O/N-RP at 600 basis points over the BSP’s regular overnight lending rate for the day. b. At 5:00 pm. Manual of Regulations for Non-Bank Financial Institutions .31 executed. as follows: Original Booking of GS a. 00) from each Eligible Participant QB for the use of the CSA-ILF Securities Account. Banking days refer to the days banking institutions are open for business. the BTr.31 E. Participating QBs shall sign individual participation agreements. Mondays thru Fridays as authorized by the BSP. For this purpose.000. G. Availability of Service The ILF is covered by a Memorandum of Agreement (MOA) dated 25 March 2008 by and among the BSP. The services outlined in the MOA shall be available at the BSP and the BTr at a fixed hour on all banking days. the Eligible Participant QB shall issue to the BTr an autodebit instruction to authorize the BTr to debit its DDA with BSP for the abovementioned monthly maintenance fee. the Bankers Association of the Philippines (for BAP members) and the Money Market Association of the Philippines (for non-BAP members). (CL-2008-036 dated 20 June 2008) Manual of Regulations for Non-Bank Financial Institutions Q-Regulations Appendix Q-13b . F. Margins Margins shall be applied based on prevailing policies of the BSP Treasury Department. The maintenance fees herein required to be paid by each Eligible Participant QB shall be separate from and exclusive of any other fees being assessed and collected by BTr for membership in the RoSS.APP.Page 3 . DDA Statements/Transaction Details Eligible Participating QBs will be able to verify the status of their accounts by initiating the SWIFT/PPS-Front-end System inquiry request. Transaction Fee The BTr shall collect a monthly maintenance fee of One Thousand Pesos (P1. Q-13b 08. The BTr will inform the Eligible Participant QBs of any change in fee at least fifteen (15) days prior to implementation.12. ________________________________ Participating Bank/Financial Institutions APPROVED: Bangko Sentral ng Pilipinas By: Bureau of the Treasury By: ________________ Bankers Association of the Philippines By: ________________ Money Market Association of the Philippines By: ________________ Q-Regulations Appendix Q-13b . including the authority of the BSP to execute payment instructions and the authority of the Bureau of the Treasury (BTr) to execute our instructions on transfer to/from. dela Costa Street. Mabini corner P. our transactions transmitted through the System in accordance with the provisions of the Agreement. Q-13b 08. Streets.12. P.APP. we agree to comply with all our obligations as participating bank/financial institution as provided in the Agreement. Salcedo Village Makati City Money Market Association of the Philippines Penthouse. Manila Bankers Association of the Philippines 11th Floor. Further. Manila Bureau of the Treasury Palacio del Gobernador Intramuros. This participation will become effective upon your conformity hereto and your notification of the same to us. PDCP Bank Center Herrera corner L. Sagittarius Building H. the BSP and the BTr.31 PARTICIPATION AGREEMENT __________________ Date Bangko Sentral ng Pilipinas A. We agree to be bound by all the terms and conditions of the Agreement and adopt it as an integral part of this Participation Agreement. Very truly yours. we agree to keep yourselves free and harmless from any claim or liability arising from. credit and debit to/against our Securities Account. Leviste Streets. Lastly. Salcedo Village Makati City Gentlemen: Please be advised that we agree to participate in the Agreement for the Establishment of Intraday Liquidity Facility to support the Philippine Payment and Settlement System (the “System”) which is covered by the Memorandum of Agreement dated _____ (the “Agreement”) among yourselves and its subsequent amendments of revisions as may be agreed upon by the parties thereto from time to time. V.Page 4 Manual of Regulations for Non-Bank Financial Institutions . Ocampo Sr. or in connection with. 000.Page 5 . ______ with the BSP for the payment of said monthly fee. The BTr will inform the undersigned of any change in fee at least fifteen (15) days prior to implementation. The undersigned will pay to BTr an additional monthly fee of P1. Please debit/credit our Regular Demand Deposit Account No. _______________ Manila. Q-13b 08.APP.12.00 for the Client Securities Account opened payable on the first business day of each month.31 Annex 1 (LETTERHEAD OF THE APPLICANT) The Treasurer of the Philippines Palacio del Gobernador Intramuros. Manila Sir: The undersigned hereby makes an application to open a Client Securities Account under the BSP-ILF RoSS Account in the Registry of Scripless Securities (RoSS) operated and maintained by the Bureau of the Treasury (BTr). Philippines (Date) (Name of Applicant) (Signature of Authorized Signatory) (Designation) Manual of Regulations for Non-Bank Financial Institutions Q-Regulations Appendix Q-13b . titles and interests over the following described Government Securities.31 Annex 2 LETTERHEAD OF THE SELLER Transaction No. ISIN TERM (Code) ISSUE DATE MATURITY DATE FACE AMOUNT (Account Number) (Name of GSED) (Signature of Authorized Signatory) (Designation) Q-Regulations Appendix Q-13b .Page 6 Manual of Regulations for Non-Bank Financial Institutions . pursuant to the Memorandum of Agreement for Intraday Liquidity Facility and the Participation Agreement executed on ______ and ______. respectively. Q-13b 08.APP. all of its rights. does hereby CONFIRM that it has SOLD. held by the Bureau of the Treasury under the Registry of Scripless Securities System. ________ Value Date ________ CONFIRMATION OF SALE OF GOVERNMENT SECURITIES The _______________. TRANSFERRED AND CONVEYED unto _______________.12. ISIN TERM ISSUE DATE MATURITY DATE (Code) FACE AMOUNT (Account Number) (Name of GSED) (Signature of Authorized Signatory) (Designation) Manual of Regulations for Non-Bank Financial Institutions Q-Regulations Appendix Q-13b .12. pursuant to the Memorandum of Agreement for Intraday Liquidity Facility and the Participation Agreement executed on ______ and ______. Value Date ________ ________ CONFIRMATION OF PURCHASE OF GOVERNMENT SECURITIES The _____________. all of its rights. does hereby CONFIRM that it has PURCHASED from ______________.Page 7 . held by the Bureau of the Treasury under its Registry of Scripless Securities System. titles and interests over the following described Government Securities.APP. Q-13b 08.31 Annex 3 Transaction No. respectively. subject to the terms and conditions hereinafter stipulated. NOW. with principal office and place of business at .12. the parties hereto hereby agree and bind themselves to the following terms and conditions: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-14 .1) IMA No. Philippines by and between: at (Hereinafter referred to as the "PRINCIPAL") and . . the Investment Manager is willing to render the services required by the Principal relative to the management and investment of Principal's investible funds. THEREFORE.APP. (Hereinafter referred to as the "INVESTMENT MANAGER") WITNESSETH: THAT WHEREAS. made and executed this day of . the Principal desires to avail of the services of the Investment Manager relative to the management and investment of Principal's investible funds. for and in consideration of the foregoing and of the mutual conditions stipulated hereunder. Philippines. organized and existing under and by virtue of the laws of the Philippines. Q-14 05.Page 1 . WHEREAS.31 SAMPLE INVESTMENT MANAGEMENT AGREEMENT (Appendix to Subsec. (Prenumbered) INVESTMENT MANAGEMENT AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT. 4411Q. an institution authorized to perform trust functions. 4. IF ANY. To invest or reinvest the Portfolio in (1) Evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral ng Pilipinas. Powers of the Investment Manager . (4) Q Regulations Appendix Q-14 . PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET CONDITIONS. IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES.Upon execution of this Agreement. assignment or pledge of.The Investment Manager is hereby conferred the following powers: a. Q-14 05. SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. POWERS 5. dividends and income or profits realized from the management. RETURN OR INCOME BY THE INVESTMENT MANAGER. For purposes of this Agreement. the latter may deliver additional funds to the Investment Manager which shall form part of the Portfolio and shall be subject to the same terms and conditions of this Agreement.The cash which the Principal has delivered to the Investment Manager as well as such securities in which said sums are invested. Delivery of Additional Funds . deposits or of deposit substitutes. Composition . interest.APP. (3) Loans fully secured by hold-out on. 3. the Principal shall deliver to the Investment Manager the amount of PHILIPPINE PESOS: _____________________________________________ (P_____________). or mortgage and chattel mortgage bonds. the term securities shall be deemed to include commercial papers.THIS AGREEMENT IS AN AGENCY AND NOT A TRUST AGREEMENT. AS SUCH. Nature of Agreement . Delivery of the Fund . the proceeds. THE CLIENT SHALL AT ALL TIMES RETAIN LEGAL TITLE TO FUNDS AND PROPERTIES SUBJECT OF THIS ARRANGEMENT. shall constitute the managed funds and shall hereafter be designated and referred to as the Portfolio. investment and reinvestment thereof.12.31 INVESTMENT PORTFOLIO 1. THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE ACCOUNT. and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities. (2) Loans fully guaranteed by the government as to the payment of principal and interest.Page 2 Manual of Regulations for Non-Bank Financial Institutions . AS SUCH. THIS AGREEMENT DOES NOT GUARANTEE A YIELD. 2. shares of stock and other financial instruments.At any time hereafter and from time to time at the discretion of the Principal. No formalities other than a letter from the Principal and physical delivery to the Investment Manager of cash will be required for any addition to the Portfolio. f.A. the instrument shall indicate that the Investment Manager is acting in a representative capacity and that the Principal's name is disclosed thereat. or gross or willful negligence on the part of the Investment Manager or any person acting in its behalf. To pay out of the Portfolio all costs. 337. 75. profits.Page 3 . interest and all other sums accruing to or due to the Portfolio. in case of securities and/or the name of the borrower and nature of security. sign or execute any and all securities. No. duties and purposes for which this Agreement is executed. That in case of the latter. in the case of loans. To open and maintain savings and/or checking accounts as may be considered necessary from time to time in the performance of the agency and the authority herein conferred upon the Investment Manager. To pay such taxes as may be due in respect of or on account of the Portfolio or in respect of any profit. b. To perform such other acts or make. That said written instrument shall contain the following minimum information: (a) The transaction to be entered into. or to accomplish any of the purposes hereof. LIABILITY OF INVESTMENT MANAGER 6. documents or contracts necessary for or connected with the exercise of the powers hereby conferred or the performance of the acts hereby authorized. 76 and 77 of R. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-14 . Exemption from Liability . and (5) Such other investments or loans as may be directed or authorized by the Principal in a separate written instrument which shall form part of this Agreement: Provided. 78 of R.APP. execute and deliver all instruments necessary or proper for the exercise of any of the powers conferred herein. bad faith. dividends.A. and h. Q-14 05. To cause any property of the Portfolio to be issued. g.31 Loans fully secured by real estate and chattels in accordance with Sec.12. the Investment Manager shall not be liable for any loss or damage to the Portfolio arising out of or in connection with any act done or performed or caused to be done or performed by the Investment Manager pursuant to the terms and conditions herein agreed. to carry out the powers. as amended. d. e. as amended. income or gains derived from the sale or disposition of securities or other properties constituting part of the Portfolio. charges and expenses incurred in connection with the investments or the administration and management of the Portfolio including the compensation of the Investment Manager for its services relative to the Portfolio. and subject to the requirements of Secs. held. (b) The amount involved. or registered in the name of the Principal or of the Investment Manager: Provided. To endorse. To collect and receive matured securities. and (c) The name of the issuer.In the absence of fraud. c. No. 337. The Investment Manager shall not be required to see as to the application of the income/principal so withdrawn from the Portfolio. the Principal shall not assign or encumber the Portfolio or its income or any portion thereof in any manner whatsoever to any person without the prior written consent of the Investment Manager. Withdrawal of Income/Principal . (c) Schedule of Earning Assets. 12. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment. and the Investment Manager shall be fully protected from any liability suffered or caused to be suffered by the Principal by virtue hereof. including the securities held in custody by the Investment Manager for the Portfolio. Reporting Requirements . shall be entitled to receive as compensation for its services a management fee of (Specify amount or rate) . 9.Page 4 Manual of Regulations for Non-Bank Financial Institutions . the Principal may withdraw the income/ principal of the Portfolio or portion thereof upon written instruction or order given to the Investment Manager. in addition to the reimbursement of its expenses and disbursements in the administration and management of the Portfolio including counsel fees. Q-14 05.31 7. Any action taken or suffered in good faith by the Investment Manager as a consequence of the opinion of the said lawyers shall be conclusive and binding upon the Principal. WITHDRAWALS FROM THE PORTFOLIO 11.12. (d) Investment Activity Report. ACCOUNTING AND REPORTING 8. (b) Income Statement. The Investment Manager shall keep and maintain books of accounts and other accounting records as required by law.The Investment Manager may seek the advice of lawyers.The Investment Manager shall prepare and submit to the Principal the following reports within ______________________________: (a) Balance Sheet. Advice of Counsel . INVESTMENT MANAGER'S FEE 10. Q Regulations Appendix Q-14 .During the effectivity of this Agreement.Subject to availability of funds and the nondiminution of the Portfolio below P1 million.APP.The Investment Manager. Investment Fee . The Principal or the authorized representative of the Principal shall have access to and may inspect such books of accounts and all other records related to the Portfolio. Non-alienation of Encumbrance of the Portfolio or Income . and (e) (such other reports as may be required by the Principal). 15. Upon the expiration of the ________ (__) days from the date of submission. the Investment Manager shall turn over all assets of the Portfolio which may or may not be in cash to the Principal less the payment of the fees provided in this Agreement in carrying out its functions or in the exercise of its powers and authorities. agreement. No amendment. novation.Upon termination of the Agreement. after the notice of termination of this Agreement has been served in writing.31 EFFECTIVITY AND TERMINATION 13. until final delivery of the Portfolio to the Principal. stipulations or promise. the parties have hereunto set their hands on the date and at the place first above set forth.The powers. except pertinent laws.12. 14. and the Investment Manager shall not be bound by any representation. the Investment Manager shall submit to the Principal an accounting of all transactions effected by it since the last report up to the date of termination. written or otherwise. the Investment Manager shall forever be released and discharged from all liability and accountability to anyone with respect to the Portfolio or to the propriety of its acts and transactions shown in such accounting. Accounting of Transaction . Q-14 05. This Agreement or any specific amendments hereto constitute the entire agreement between the parties. duties and discretion conferred upon the Investment Manager by virtue of this Agreement shall continue for the purpose of liquidation and return of the Portfolio. 16. circulars or regulations approved by the Government or its agencies. (PRINCIPAL) (INVESTMENT MANAGER) By: SIGNED IN THE PRESENCE OF: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-14 . IN WITNESS WHEREOF.Page 5 . modification or supplement of this Agreement shall be valid or binding unless in writing and signed by the parties hereto.Within _____ (__) days after the termination of this Agreement.APP. Remittance of Net Assets of the Portfolio .This Agreement shall take effect from the date of signing hereof and shall be in full force and effect until terminated by either party by giving written notice thereof to the other at least _______(__) days prior to the termination date. Term . except with respect to those objected to in writing by the Principal within the __________ (__) day period. Powers upon Liquidation . not contained in this Agreement or incorporated herein by reference. swaps and options.Page 1 . including forwards. on the other hand. Introduction and Basic Principles 1. II. all of them can be divided into the basic building blocks of options. financing or position-taking on the normal course of Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-15 . such as those with embedded options. are not by themselves sufficient. derivatives can offer managers efficient and effective methods for reducing certain risks through hedging. 2.31 RISK MANAGEMENT GUIDELINES FOR DERIVATIVES (Appendix to Subsec. derivatives activities are becoming a direct source of revenue through "marketmaking" functions and "position-taking": . 3. When used prudently. Derivatives activities include a wide assortment of financial contracts. a derivatives instrument is a financial contract whose value depends on the values of one or more underlying assets or indices. The use of these basic building blocks in structuring derivatives instruments allows the transfer of various financial risk to parties who are more willing. Derivatives may also be used to reduce financing costs and to increase the yield of certain assets.3) Foreword These guidelines. futures and forwards or some combination thereof. While the precise applicability of these guidelines will depend on the size and complexity of an institution's derivatives activities. and . futures."MARKET-MAKING" functions involve entering into derivatives activities with customers and with other marketmakers while maintaining a generally balanced portfolio with the expectation of earning fees generated by a bid/offer spread. are expected to facilitate the further development of a prudent approach to the risk management of derivatives. The BSP recognizes that sound internal risk management is essential to the prudent operations of financial institutions and that supervisory tools. End-users typically enter into derivatives activities to achieve specified objectives related to hedging. other traded instruments incorporate derivatives characteristics. Participants in the derivatives markets are generally grouped into two categories based primarily on their motivations for entering into derivatives contracts. we believe that the application of the basic principles embodied therein are very relevant even for risks inherent in more traditional activities. Q-15 05. While some derivatives instruments may have very complex structures. isolate and manage separately the market risks in financial instruments and commodities.12. I. Derivatives instruments have become increasingly important to the overall risk profile and profitability of banking organizations throughout the world."POSITION-TAKING". such as capital requirements. to take or manage them. which are based on the "Risk Management Guidelines For Derivatives" issued by the Basel Committee on Banking Supervision in July 1994. For a growing number of banking organizations. swaps. From a risk management perspective. Derivatives are used by banking organizations both as risk management tools and a source of revenue. 4603Q. represents efforts to profit by accepting the risk that stems from taking outright positions in anticipation of price movements. Sound internal risk management is also essential to promoting stability in the financial system as a whole.APP. or better suited. In addition. they allow financial institutions and other participants to identify. Broadly defined. They include. Policies and procedures to govern trading. In general. Internal control system. government agencies and international agencies. 7. and corporations. III. Internal audit policies. comprehensive internal controls and audit procedures. bid/ offer spreads and their own trading positions. 5. The basic risks associated with derivatives activities are not new to banking organizations. Scope of derivatives activities and types of services and products offered to clients. Client-oriented safety nets. continuous risk monitoring and frequent management reporting. Q-15 05. Important intermediaries. 9.Page 2 end-users of derivatives instruments. Recognizing the importance of sound risk management to the effective use of derivatives instruments. These basic principles include: a. 2. As intermediaries.APP. Manual of Regulations for Non-Bank Financial Institutions . 5. exposure and gap limits. 10. 6. adequate risk management process that integrates prudent risk limits. Board of Directors b. derivatives have the potential to enhance the safety and soundness of financial institutions and to produce a more efficient allocation of financial risks. funds and specialized investment partnerships. Written policies and procedures on derivatives activities must be set forth and documented in a policy manual duly approved by its Board of Directors. 4. Policies and procedures for controlling and measuring risk.31 their business operations. local and state governments. which are sometimes referred to as "Dealers". and 11. banks have traditionally offered foreign exchange and interest rate risk management products to their customers and generally view derivatives products as a financial risk management service. cater to the needs of end-users by "making markets" in over-the-counter derivatives instruments. and documentation of transactions. Authorities and Responsibilities of: a. Oversight of the Risk Management Process. The manual should include the following minimum features: 1. 4. the following guidelines are intended to highlight the key elements and basic principles of sound management practice for both dealers and Q Regulations Appendix Q-15 . liquidity risk. A wide variety of business enterprises are end-users. they can also threaten the safety and soundness of institutions if they are not clearly understood and properly managed. and c. Intermediaries. since derivatives also have these basic risks in combinations that can be quite complex. Because they facilitate the specific identification and management of these risks. However.12. Policy review. 6. operations risk and legal risk. b. including trading. Job description of key position and minimum qualification standards. Department Managers f. appropriate oversight by Boards of Directors and/or Management Committee and Senior Management. sound measurement procedures and information systems. but are not limited to. Management Committees c. or derivatives dealers. Accounting policies and procedures. Trading or Dealing Officers/Staff 3. they expect to generate income from transaction fees. In doing so. 8. Chief Executive Officer d. securities firms and insurance companies. Other Senior Officers e. market risk. include major banks and securities firms. these risks are credit risk. Reporting requirements. a broad range of financial institutions such as banks. Senior management should regularly evaluate the procedures in place to manage risk to ensure that those procedures are appropriate and sound. B. Senior management should be responsible for ensuring that there are adequate policies and procedures for conducting derivatives operations on both a long-range and day-to-day basis. Risk Measurement 1. To enable an institution to manage its risk exposure more effectively. It shall directly report to the Board of Directors or to the appropriate management committee. capital strength. and strong management information system for controlling. Q-15 05. 2. operations risk and legal risk (Section VI of these Guidelines). 2.APP. Oversight by Senior Management 1. 2. Accordingly. The Board of Directors or appropriate management committee shall structure a compensation package for risk management officers and staff in such a way that the said package is sufficiently independent of the performance of trading activities. C. which should include those related to derivatives activities.31 A. 3. In derivatives activities. b) ensuring that all appropriate approvals are obtained and that adequate operational procedures and risk control systems are in place. This responsibility includes: a) ensuring that there are clear delineations of lines of responsibility for managing risk. its risk management process for derivatives activities should be integrated into its overall risk management system using a conceptual framework common to its other activities. market risk. These policies. The Risk Management Process 1. monitoring and control of risks consistent with established policies and procedures. monitoring and reporting risks. An independent body shall manage the measurement. detailed structure of limits. A. The primary components of a sound risk management process are: comprehensive risk measurement approach. Risk should be measured and aggregated across trading and non-trading activities on an institution-wide basis to the fullest extent possible. guidelines and other parameters used to govern risk-taking. management expertise and overall willingness to take risk. effective internal controls and a comprehensive risk-reporting process. Any significant changes in any derivatives activities or any new derivatives activities should be approved by the Board of Directors or an appropriate level of senior management as designated by the Board of Directors. The risk exposures in derivatives activities should be fully supported by an adequate capital position. compensation policies for these individuals should be adequate to attract and retain personnel qualified to assess these risks.Page 3 . 2. appropriately structured limits on risk taking. liquidity risk. assessment of the following risks should be included: credit risk. Independent Risk Management Functions 1. should be consistent with the organization's broader business strategies. adequate systems for measuring risk. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-15 . Oversight by Board of Directors and/ or Management Committee 1. The personnel performing independent risk management functions should have a complete understanding of the risks associated with all of the bank's derivatives activities. The Board of Directors or appropriate Management Committee should approve all significant policies relating to the management of risks throughout the institution. 3.12. IV. A sound system of internal controls should promote effective and efficient operations. The review should include assessment of the methodologies. Should pre-determined limits be exceeded. analyzing and managing risk. 2.APP. Manual of Regulations for Non-Bank Financial Institutions . Sound risk measurement practices include analysis of stress situations and identification of changes in market behavior that could have unfavorable effects on the institution and assessment of the ability of the institution to withstand them. Risk management guidelines should be evaluated and reviewed regularly since any change in either the institution's activities or the market environment may have created exposure that requires additional attention. the adequacy of management information systems. and timely reporting system to the appropriate level of management is essential to the prudent operation of Q Regulations Appendix Q-15 . Management Evaluation and Review 1. Before being involved in new products. Limiting Risks 1. or more often as market conditions dictate. These reviews should be made at least annually. to ensure that they are appropriate and consistent. the process of identifying. models and assumptions used in measuring risk. Such a system should define. Earnings or capital-at-risk limits This defines the limit on potential loss which could be expressed as a percentage of projected earnings or capital.31 2. trading positions and market improvements should be done at least daily. legal. Limit structures should be altered whenever necessary to reflect the institution's past performance and current position. informative. 2. to judge the changing nature of the institution's risk profile. reliable financial and regulatory reporting. Reporting. the following limits: a. regulations and policies of the institution. C. Top management should be provided with adequate and timely information. on a regular basis. An accurate. all relevant personnel (including those in risk management. Exposure limits . 3. a report to senior management must be made for information and appropriate action.This defines maximum exposure to the various derivatives products. D.from individual traders to the Board of Directors. Risk measurement procedures should be understood by all relevant personnel . and compliance with relevant laws. Internal Controls and Audit 1.12. B. V. A daily report to management indicating the gain or loss on derivatives activities should be submitted. among others. A sound system of integrated institution-wide limits should set boundaries for organizational risk-taking and should ensure that position which exceeds pre-determined levels receive prompt management attention. Q-15 05. the institution should consider the overall control environment of the organization. Mark-to-Market valuation of derivatives positions is fundamental to measuring and reporting exposures accurately and on a timely basis. In determining whether internal controls meet those objectives. accounting and auditing) should understand the product and should be able to integrate it into the institution's risk measurement and control systems.Page 4 derivatives activities. internal control. Monitoring of credit exposures. 3. and adherence to control activities such as approvals. and b. 4. Bank management should ensure that a mechanism exists whereby financial derivatives contract documentation is confirmed. Written policies/procedures for handling/ recording confirmation and settlement of transactions. documentation of review and approval of limits and sub-limits. Documentation exceptions should be properly monitored and resolved. segregation of duties between the front office and back room personnel. and b. Credit risk management should parallel the prudent controls expected in traditional lending activities.Page 5 . modeling methodologies. Internal limits that are prudent in the light of its financial condition and management expertise should be established. revaluation of positions indicating sources of revaluation rates. and allowance allocations. Internal auditors should audit and test the risk management process and internal controls on a periodic basis. Policies and procedures should be formalized to address concerns such as significant counterparty exposures. the risk oversight process. with the frequency based on a careful risk assessment. and safeguarded. The depth and frequency of internal audits should be increased if weaknesses and significant issues are discovered. internal auditors should be brought into the product development process at the earliest possible stage. Q-15 05. 3. and evaluation and reporting to the Board of Directors/ Senior Management of audit findings/ exceptions. and such other key activities the institution is engaged in. concentration of credit.is the risk that a counterparty will fail to perform on an obligation to the institution. Banks with more active derivatives businesses may consider establishing a separate documentation unit to control financial derivatives contracts and supporting documents. internal controls or the over-all risk profile of the institution. The institution should develop internal controls for key activities which should include the following features: a. Such a unit may be a part of a broader documentation unit of the legal department. Reconciliation control is particularly important where there are differences in the valuation methodologies or systems used by the front and back offices. 5.31 confirmations and reconciliations.12. A chart of subsidiary accounts adequately describing each account and designed to complement the Manual of Accounts prescribed by the BSP. Controls must be in place to ensure that the appropriate contract documentation is timely and properly executed and maintained. An institution should include in its credit risk policy. To facilitate the development of adequate controls. Internal auditors are expected to continuously evaluate the independence and overall effectiveness of the institution's risk management functions. Credit Risk . limits. 4. the credit exposures to an individual counter-party. 2.APP. They should be involved in the periodic review and evaluation of all bank policies. The bank should establish a process through which documentation exceptions are monitored and appropriately reviewed by senior management and legal counsel. Sound Risk Management Practices for Each Type of Risk A. non-performing contracts. VI. internal controls and procedures developed for the institution's key activities. risk ratings. or if significant changes have been made to product lines. maintained. Policies and procedures should reflect the Board of Director's risk tolerance for Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-15 . able to analyze the impact of proposed derivatives activities on the financial condition of the customer.APP. and c) produce a number representing a reasonable approximation of loan equivalency. and able to understand the applicability of financial derivatives instruments to the risks the bank customer is attempting to manage. Settlement Risk This is the risk that an institution faces when it has performed its obligations under a contract. Credit analysis should be documented and necessary information should be provided to customer/s. and allowance allocations should be consistent. Pre-settlement Risk 1. This methodology adopted to measure and monitor credit risk should be controlled by personnel independent of the trading unit.Page 6 be obtained independently from qualified sources on a periodic basis. Policies addressing credit management functions.31 concentration of credit. 2. The mark-to-market calculation should incorporate the same controls as the mark-to-market calculation used to identify profits and losses. The risk monitoring unit should be responsible for producing and distributing timely and accurate information about credit exposures. 2. Settlement risk limits should be established separately from presettlement credit limits and should consider capital adequacy. b) use a reliable source for determining the credit risk factor used to calculate the credit risk add-on. The system to be used to quantify the pre-settlement credit risk exposure should: a) take into account current exposure ("mark-to-market") as well as potential credit risk due to possible future changes in applicable market rates or prices ("add-on"). such as risk ratings.is the risk that adverse movements in the level or volatility of market prices will affect the institution's financial condition. Management should make sure that credit authorizations are provided by personnel independent of the trading unit to ensure safe and sound management of derivatives credit risk exposure. Prices should Q Regulations Appendix Q-15 . responsible for establishing and changing financial derivatives credit lines.12. that is. Manual of Regulations for Non-Bank Financial Institutions . Management should establish limits and monitoring procedures for settlement risk exposures. operations efficiency and credit analysis expertise. The traders should not be used as the source of market valuations. Market Risk . An internal control system to determine potential credit risk should be in place. such as concentration of credit. but has not yet received value from its counterparty. 2. Credit officers and approving officers should be: familiar with credit risk. and significant counterparty exposures. Credit Approval Function 1. Q-15 05. nonperforming contracts. the amount of credit exposure inherent in a comparable extension of credit. Credit Risk Monitoring 1. Monitoring reports should provide sufficient detail to identify credit risk arising from settlement versus presettlement exposure. B. credit quality. The sophistication of credit risk measurement system should be consistent with the level of activity and degree of risk assumed in derivatives activities. limit exceptions. Credit risk monitoring should be independent of the units that create financial derivatives exposures. At such times. or to provide sufficient collateral or other credit enhancements in order to continue trading under a broad range of scenarios. such as futures or cash markets. all risk measurement applications and models should be reviewed and validated annually.31 Dealers and Active Position-Takers 1. Management should evaluate these risks in the broader context of the institution's overall liquidity because neither type of liquidity risk is necessarily unique to derivatives activities. monitored. This system should be structured to enable management to initiate prompt remedial action. an institution should consider the possibility that it could lose access to one or more markets. and whenever market conditions change significantly. the institution may have less flexibility in managing its market. Statistical analyses should be used to characterize market scenarios and price behavior. The institution's liquidity plan should reflect its ability to turn to alternative markets. either because of concerns about the institution's own credit worthiness. customers may ask for the early termination of some contracts within the context of the dealer's market making activities. an option writer selling an underlying asset as its price falls. or to meet its cash flow obligations as they fall due or upon margin calls (cash flow/funding liquidity risk).. under conditions of market stress. 2. 1. At a minimum. exit or unwind its position at a desired market price (market/product liquidity risk). facilitate stress testing. C.is the risk that an institution will not be able to. Liquidity Risk . In developing guidelines for controlling liquidity risks. An institution that participates in over-the-counter derivatives markets should assess the potential liquidity risks associated with the early termination of derivatives contracts.APP. credit and liquidity risk exposures. 3. There should be a risk measurement system that can quantify risk exposures arising from changes in market factors. and management should maintain adequate documentation to support the reliability of the validation process. 2. the credit worthiness of a major counterparty or because of generally stressful market conditions. Limited End-Users The senior management should ensure that all significant risks arising from their derivatives activities can be quantified. or cannot easily. In such situations. and assess the potential impact of various changes in market factors on earnings and capital. In addition. and controlled. risk management systems should evaluate the possible impact of derivatives activities on earnings and capital which may result from adverse changes in interest rates and other market conditions that are relevant to risk exposure and the effectiveness of financial derivatives activities.g.) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-15 . At a minimum. Q-15 05. the analyses should be validated by a source independent of the trading desk or risk assumption unit. an institution that owes money 1 Dynamic hedging refers generally to the continuous process of buying and selling of instruments to offset exposures as market conditions change (e. Before they are used.Page 7 .12. Many forms of standardized contracts for derivatives activities allow counterparties to request collateral or to terminate their contracts early if the institution experiences an adverse credit event or a deterioration in its financial condition. An institution that makes markets in overthe-counter derivatives or that dynamically hedges1 its positions requires constant access to financial markets and that need may increase in times of market stress. This includes the ability to efficiently process and settle the volume transacted through the business unit. Q-15 05. in consultation with its legal counsel. 2. The terms of any contract governing derivatives activities should be legally sound. The institution should also have approved policies that specify documentation requirements for derivatives activities and formal procedures for savings and safeguarding important documents that are consistent with legal requirements and internal policies. (ISDA) Master Agreement insofar as the same is not inconsistent with existing laws. exposure reporting and risk monitoring from the business unit is critical to proper internal control. The Board of Directors/Management Committee and senior management should ensure the proper dedication of resources to support operations and systems development and maintenance. Operational Risk . Before engaging in derivatives activities. The institution should use the International Swap Dealers Association. market positions.31 on derivatives activities may be required to deliver collateral or settle a contract early and possibly at a time when it may face other funding and liquidity pressures. 4. should be satisfied that its counterparties have the legal authority to engage in such activities. Management should ensure that a mechanism exists whereby derivatives contract documentation is confirmed. to provide support for the complexity of the transactions booked and to provide accurate and timely input.APP. The sophistication of the systems support and operational capacity should be commensurate with the size and complexity of the derivatives business activity. Legal Risk . E. The operation unit should report to an independent unit and should be managed independently of the business unit. 3. maintained and safeguarded. Segregation of operational duties. D. 1. Early terminations may also open up additional. Support systems and the systems developed to interface with the official Q Regulations Appendix Q-15 . 3.12. unintended. 1.is the risk that an institution will suffer an unexpected loss due to deficiencies in information systems or internal controls. an institution. rules and regulations.is the risk that contracts are not legally enforceable or correctly documented. 2. Manual of Regulations for Non-Bank Financial Institutions . Systems support and operational capacity should be adequate to accommodate the types of derivatives activities in which the institution engages. Management and directors should be aware of these potential liquidity risks and should address them in the institution liquidity plan and in the broader context of the institution's liquidity management process.Page 8 databases should generate accurate information sufficient to allow business unit management and senior management to promptly monitor risk exposures. Inc. An institution should establish a process through which documentation exceptions are monitored and resolved and appropriately reviewed by senior management and legal counsel. derivatives activities may provide significant benefits and involve a variety of significant risks. the derivatives activity entered into with you. tax and accounting implications of entering into any derivatives activity. financial and operational resources. In addition. us or any of our subsidiaries/affiliates. from time to time. or arranged by. which may significantly exceed the amount of any initial payment by or to you. among others.3) Similar to other financial transactions. In general. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-16 . you should carefully consider whether the transaction is appropriate for you in light of your objectives. THIS BRIEF STATEMENT DOES NOT PURPORT TO DISCLOSE ALL OF THE RISKS OR OTHER RELEVANT CONSIDERATIONS OF ENTERING INTO DERIVATIVES ACTIVITIES. In entering into any derivatives activity with. ________________ may.Page 1 . Before entering into any derivatives activity. the risk of adverse or unanticipated market. You should also consider the legal. risk of counterparty or issuer default and other credit and enforcement risks. financial or political developments. or other commercial relationship with the issuer of any security or financial instrument underlying the derivatives activity entered into with you. which include.31 RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES (Appendix to Subsec. you may be subject to operational risks in the event that you do not have in place appropriate internal systems and controls to monitor the various risks. and other relevant circumstances. experience. and risk of illiquidity and related risks. As in any financial transaction. corporate advisory.12. have substantial long or short positions in. YOU SHOULD REFRAIN FROM ENTERING INTO ANY SUCH ACTIVITY UNLESS YOU FULLY UNDERSTAND ALL SUCH RISKS AND HAVE INDEPENDENTLY DETERMINED THAT THE ACTIVITY IS APPROPRIATE FOR YOU. Whether or not you and ________________ have established a written financial advisory or fiduciary relationship. 4603Q. funding and other requirements to which you may be subject by virtue of your activities in derivatives and other financial markets. __________________may also have an investment banking. you should ensure that you understand the requirements applicable to you that are established by your regulators or by your board of directors or other governing body. all derivatives activities involve risks.APP. Q-16 05. and may make a market in or otherwise buy or sell instruments identical or economically related to. you should also understand that ____________________ is acting solely in the capacity of an arm's length contractual counterparty and not in the capacity of your financial adviser or fiduciary unless ____________________ has so agreed in writing and then only to the extent so provided. You should ensure that you fully understand the nature and extent of your exposure to risk of loss. 12.31 ACCOUNTING GUIDELINES FOR DERIVATIVES (Appendix to Subsec. Q-17 05.5) Incorporated in 4603Q.5 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-17 . 4603Q.Page 1 .APP. by the distribution of such securities for sale. shall determine. assistant vice-president. resale. 129. 129. corporate secretary. Definitions. Sec. j) Organizers are persons who undertake to form an IH. general manager. interest or participation.APP. including securities of the Government or its instrumentalities. The distribution and sale may be on a public or private placement basis. including securities of the Government and its instrumentalities. in consultation with the BSP. Nos. Q-18 05. or written evidences of indebtedness of a person or enterprise. 1143 and 5050. as are subscribed and entitled to vote. OTHERWISE KNOWN AS "THE INVESTMENT HOUSES LAW" (Appendix to Secs. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-18 . either through an outright purchase or through a corresponding commitment to purchase the balance not subscribed or sold. pursuant to the powers vested in it by said Decree. but is not limited to. hereby promulgates the following rules and regulations for the information and guidance of the public: Section 1. and who are indicated in the articles of incorporation as the incorporators and the incorporating directors. b) Underwriting of securities is the act or process of guaranteeing the distribution and sale within the Philippines of securities issued by another person or enterprise. 2. and by R. These rules and regulations shall apply to any enterprise which engages or purports to engage in the underwriting of securities. executive vicepresident. which includes the president. vicepresident. d) Guarantee is any commitment and/ or undertaking made by a person.A.31 SEC BASIC RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF PRESIDENTIAL DECREE NO. whether regularly or on an isolated basis. c) Securities are written evidences of ownership. 4604Q and 4656Q) To effectively carry out the provisions of Presidential Decree (P. the instruments enumerated in Section 2 of the Securities Act.) No. Where an IH is under a management contract the terms shall be understood to include the officers of the management firm.12.D. f) Public distribution refers to the underwritten sale of securities to at least 20 persons or enterprises. or subscription. h) Paid-in capital are all payments on subscriptions to the authorized capital of an IH. 129 and these rules shall be understood to mean as follows: a) Investment House (IH) is any enterprise which engages or purports to engage. It includes. k) Managerial staff are the officers of an IH.D. head of an operating department and branch manager and such other officers as the Commission. firm or entity to an issuer or holder of securities to raise funds for said issuer or holder. among themselves and others. in any enterprise. i) Officer shall be understood to mean a senior officer of an IH or bank. in the underwriting of securities of another person or enterprise. otherwise known as "The Investment Houses Law". No. The following terms as used in P. Scope of Applicability. including premiums paid in excess of par. e) Private placement refers to the underwritten sale of securities to less than 20 persons or enterprises. g) Voting stock is that portion of the authorized capital stock of an IH. the Commission.Page 1 . The organizers shall file with the Commission. 129 and of existing laws relative to the organization of an IH have been complied with. together with the following documents: (1) All documents required for registration as a stock corporation. Procedure . m) Quasi-banking functions shall refer to the functions defined as such by law and appropriate implementing rules and regulations. with respect to corporate owners of voting stock. In determining the percentage of foreign-owned voting stocks in an IH.Page 2 7) No director or officer of an IH shall at the same time be a director of a bank. Q-18 05. except as may be authorized as an exception by the Monetary Board of the BSP. if any. (3) The amount of capital. direction and Manual of Regulations for Non-Bank Financial Institutions . 3.0 million at the time of incorporation. the citizenship of the individual owners of voting stock in the corporation holding shares in the IH. (2) An information sheet of the registrant corporation. 3) Foreign equity participation shall be registered or reported with the Board of Investment in accordance with the rules and regulations of that Office.12. if any (SEC Form 129-3). of their educational background and work experience. C. Hearing on Application . as amended. Investment Houses shall be organized in the form of stock corporations in accordance with the provisions of the Corporation Law. n) Commission shall mean the Securities and Exchange Commission.D. 6) In no event shall an officer of an IH be at the same time an officer of a bank. Organization and Registration A.The SEC Commissioner shall not register any articles of incorporation unless his Office shall have consulted the BSP and is satisfied on the basis of the evidence submitted that: (1) All the requirements of P. including its investment direction and volume. and undivided profits net of such valuation reserves as may be required by the Commission provided that the Commission may include such other items as it may deem appropriate. 337. shall register with the Bureau of Immigration and Deportation. B. Sec. No. and. surplus. (5) A tentative program of operation for one year. the proposed organization. and no director of an IH shall at the same time be an officer of a bank. No. subject to the following requirements: 1) At least a majority of the voting stock of the corporation shall be owned by citizens of the Philippines. as defined in Section 3 of R. as well as information on any position currently held by them in banking and other financial institutions. 2) The majority of the members of the Board shall be citizens of the Philippines. (2) Public interest and economic growth are promoted. [SEC Form 129-2] (3) A statement under oath by the organizers and the proposed managerial staff. Q Regulations Appendix Q-18 . if any.APP. the basis of the computation shall be the citizenship of each stockholder.A. 5) Resident foreign directors or technicians of an IH. (4) A one-year projected statement of assets and liabilities of the proposed IH.The Commission shall conduct a hearing to determine whether the establishment of the proposed IH will promote public interest and economic growth. prior to or simultaneous with the registration with the Commission. The BSP shall be officially notified. 4) The corporation shall have a minimum initial paid-in capital of P20.31 l) Unimpaired capital and surplus means the total of the unimpaired paid-in capital. a sworn application for registration in accordance with the prescribed form. its expected sources and intended uses of funds and its quasibanking functions. each IH shall pay a fee of P200. a Certificate of Incorporation will be issued to it. Contingency Reserves. F. 7. it being understood that no public distribution of securities shall be made without such approval. Transactions which constitute quasi-banking functions shall be subject to BSP regulation. in order to determine if prudence and safety of the principal have been paramount in the decision of the IH. Branch Operations . Except in highly meritorious cases. Underwriting Requirements Underwriting agreements entered into by an IH. partnership or corporation other than those duly licensed as an IH in accordance with these rules and regulations. The Commission may impose such terms and conditions as may be necessary in the public interest and for the protection of investors.Upon compliance with all the requirements of law and implementing rules. 4. An IH shall provide annually a reserve for contingencies in such reasonable amount as may be required by the Commission. 5. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-18 .No person. Underwriting Fees. Issuance of Certificate of Incorporation . by circular. as approved by the Commission. All applications for a license to operate a branch shall be acted upon by the Commission within ninety (90) days after submission of such documents as may be required by the Commission in support of such application. The IH shall ensure that the interest of the funds managed is promoted and that the operation of the funds is undertaken on an arms' length basis. experience and expertise of the organizers and the proposed managerial staff. the Commission may require the licensee to appear and inform the Commission of the results of its operations. maintain or operate a branch or agency without first securing from the Commission a license to operate a branch in a particular locality. and it may require the submission of such documents as may be necessary to ascertain compliance with such standards of operation as it may establish. Annual Fees . shall provide limitations on investments of discretionary accounts under the management of an IH. and the Commission is satisfied that the formation of the IH will promote public interest and economic growth. an IH shall not collect underwriting fees in excess of five percent (5%) of the amount generated by the underwriter for the issuer.On or before the fifteenth day of January of each year. an IH may take for its own account a portion of the securities it underwrites but shall sell such securities to the public. Use of the Term "Investment House" . and for as long as its license to operate remains in effect. Sec. G. Sec. Should the IH engage in the management of funds. with respect to public distribution of securities. The Commission. The Commission may require such documents and reports as may be necessary. A license to operate shall also be granted after it shall have adopted its by-laws. as well as the integrity. association.APP. it must at all times adhere to the prudent man's rule.12. Sec. Sec. E. D. At the time of payment.Page 3 .31 administration. As a gesture of faith in the issue. Management of Funds. provide reasonable assurance that the enterprise will be conducted with financial prudence. Q-18 05. 6. shall advertise or hold itself out as being engaged in the business of an IH. shall be subject to the approval of the Commission.No IH shall open. elected its directors and appointed its officers. including the fees to be charged in connection therewith. prior to 15 February 1973. 129 and of these Rules. A copy shall be filed with the BSP. 83. 129.Page 4 dismissal. suspension. B. its officers and other personnel directly involved in the management of funds are prohibited from simultaneously or concurrently buying or selling the shares of stock of the same firm that the funds are buying or selling. Semi-Annual Financial Statement signed under oath by its chief accountant and verified by the president. otherwise known as the Securities Act. No. C. within fifteen (15) days after occurrence of the event. pay the required fee under Sec. Progress Reports . unless sufficiently collateralized.D. shall issue a License to Operate an IH. Prohibitions (1) No IH shall undertake underwriting commitments for its own account in an aggregate outstanding amount exceeding twenty (20) times its unimpaired capital and surplus. signed under oath by the secretary. however. Manual of Regulations for Non-Bank Financial Institutions . Sec. Annual Report concerning its operational activities for the year just ended. within fifteen (15) days from the end of each quarter. Sec. shall: (1) Within six (6) months from 15 February 1973 file an information sheet with the Commission in such form and containing such data as may be required. and the prohibition on interlocking directorate or officership. A copy shall be filed with the BSP. it shall comply with the provisions of C. Every registered IH shall maintain and preserve such records and documents as the Commission may prescribe by way of circulars. officers and stockholders owning at least 10% of the outstanding capital of an IH shall be allowed.a quarterly report of the results of its underwriting operations and activities of funds managed on all commitments entered into in such form as may be provided for the purpose. 8. or of any officers or managerial staff. 11. citizenship requirements. Reporting Requirements. 3-E of these rules.A. otherwise. All existing enterprises which have been operating as Investment Houses. 9. 10. A Report on the composition of the board of directors or any resignation. Q-18 05. and the Commission in consultation with the Monetary Board. If an IH engages in the business of a stockbroker or dealer pursuant to P. signed by its president (SEC Form 129-1) within the month of March of each year. Transitory Provisions A.31 Sec. D. No. that an IHe need not obtain a separate license under Section 14 of the Securities Act. (2) Within one (1) Year from 15 February 1973 comply with the requirement of a minimum paid-in capital of P20. it shall be prohibited from underwriting securities for so long as such deficiency remains.APP. Q Regulations Appendix Q-18 . or filling of vacancies therein. and in such form as the Commission shall require. within a period of sixty (60) days after the end of each semester containing such data. (4) No advance to directors. after determining compliance with the requirements of P. Sec. Every registered IH shall file with the Commission the following periodic reports in triplicate: A.0 million. (3) Whenever an IH is engaged in the management of funds.12. Stockbrokerage or Dealership Functions. No. Such circulars shall provide for a reasonable degree of uniformity in accounting policies and principles to be followed by IHs in maintaining their accounting records and in preparing statements as required by these rules. (2) An IH shall not at any time allow its unimpaired capital and surplus to fall below P20. and the rules and regulations of the Commission promulgated pursuant thereto: Provided.D.0 million. Visitorial Power.D.31 Sec. 129. grant an exemption from compliance with any requirements of these rules as may be consistent with public interest and the protection of investors. 129 or of any applicable laws. They shall be published in a newspaper of general circulation in the Philippines and in the Official Gazette. In the exercise of its regulatory powers under Section 12 of P. 15. (SGD. 9 July 1973. Sec. YABYABIN Securities and Exchange Commissioner APPROVED: (SGD. D.) ARCADIO E. Any violation of P. 129. shall be penalized by suspension or revocation of the License to Operate. 16. In appropriate cases. Manila.) TROADIO T. Effectivity. No. Failure to comply with the cease-anddesist order shall subject an IH to a fine to be imposed by the Monetary Board. Philippines. 13. shall be imposed upon the IH and the officer or director who ordered or authorized the violation. rules governing quasi-banking functions of IHs. the Monetary Board may issue a cease-anddesist order upon an IH which is not complying with BSP rules and regulations pertaining to non-bank financial intermediaries or. No. Penalties. 14.Page 5 . without prejudice to the criminal liabilities provided in the second paragraph of Section 16 of P.D. Sec.D. The Commission may. a fine not exceeding P200 per day for every day during which such violation continues. Bangko Sentral Rules.12. QUIAZON. 12. after proper notice and hearing. upon proper petition and payment of a fee of P100.APP. Sec. General Exemption Power The Commission may. Q-18 05. at its discretion. No. make such investigations as it deems necessary to determine whether or not an IH is complying with any of the provisions of P. JR. These rules shall take effect immediately. 129 or of these rules and regulations. IHs shall also be subject to the rules and regulations promulgated by the BSP for non-bank financial intermediaries as provided by law. It shall determine all the facts and circumstances concerning the matter to be investigated for the imposition of sanctions/penalties or remedial or preventive measures. in appropriate cases. Acting Secretary of Trade Date: 13 July 1973 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-18 . Sec. No. rules and regulations. foreclosed properties and prepayments. or by leasing of motor vehicles. mortgage.A. under which. e. part or all of the price is payable subsequent to the making of such sale or contract. the Securities and Exchange Commission. commercial. appliances and other movable property.A. The following definition of terms shall apply for purposes of these Rules: a. any rental-purchase contract. or other evidences of indebtedness. Provided. or sale or contract of sale of property or service. demand. any option. advance or discount. which are primarily organized for the purpose of extending credit facilities to consumers and to industrial. R. That in the computation thereof direct loans and temporary investments in government securities shall be taken into account. heavy equipment and industrial machinery. 5980 (THE FINANCING COMPANY ACT). 5980 (The Financing Company Act).APP. deed of trust. 1143 and Presidential Decree No. or for the delivery of. 4656Q) To effectively carry out the provisions of R. except those supervised by the Central Bank of the Philippines.31 Republic of the Philippines Department of Finance SECURITIES AND EXCHANGE COMMISSION SEC Building. d. c. fixed assets inclusive of appraisal surplus. chattel mortgages. pursuant to the powers vested in it under said Act. b. 902A. Metro Manila NEW RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF REPUBLIC ACT (R. FUNDS as used herein shall mean total assets inclusive of allowance for doubtful accounts and deferred income less investment in real estate. by buying and selling contracts.12. business and office machines and equipment. PRIMARILY ORGANIZED shall mean organized for the primary purpose of operating as a financing company and that more than 50% of its funds shall be used or invested in financing company activities. or other acquisition of or any credit upon the security of any obligation or claim arising out of the foregoing. any contract to sell. leasehold rights and improvements. as amended. pledge. either for present or future delivery. lien. hereby promulgates the following rules and regulations: Section 1. No. as amended. No. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-19 . or agricultural enterprises: by discounting or factoring commercial papers or accounts receivable. AS AMENDED (Appendix to Sec. FINANCING COMPANIES are corporations or partnerships. Definition of Terms. EDSA. Q-19 05. Greenhills Mandaluyong. any conditional sales contract. property or money.A. CREDIT shall mean any loan. Office of the Insurance Commissioner and the Bureau of Cooperatives Development. any purchase.Page 1 .) NO. and any transactions having a similar purpose or effect. or other claim against. leases. COMMISSION shall mean the Securities and Exchange Commission. shares of stock in a real estate development corporation and real estate based projects which shall not exceed 25% of networth of the investing company. a financing company of evidences of indebtedness or open accounts by the discounting or factoring. 2. h. a financing company in an amount or for a consideration less than their face value. delivery receipts and similar documents.500. at least sixty percentum (60%) of the total capital contributions of the partners.000 . The contract shall extend over an obligatory period Q Regulations Appendix Q-19 . are purchased by. b.000 .000. Q-19 05. Form of Organization. motor vehicles.000 . and other movable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least 70% of the purchase price or acquisition cost. and similar instruments. 68) or general partnerships pursuant to the provisions of the New Civil Code of the Philippines and subject to the following: a. Sec. such as installments contracts.APP. in case of corporations. capital adjustments. PAID-UP CAPITAL refers to the amount paid for the subscription of stock in a corporation including the amount paid in excess of par value. g. FACTORING is a type of receivables financing whereby open accounts. PURCHASE DISCOUNT is the difference between the value of the receivables purchased or credit assigned. industrial machinery. l. or assigned to. maintenance.Page 2 during which the lessee has the right to hold and use the leased property and shall bear the cost of repairs. shall be owned by citizens of the Philippines. or assigned to.31 f. appliances. j.Metro Manila Area 2) 5. k. that shall maintain their principal offices in the areas hereunder specified. not evidenced by a written promise to pay supported by documents such as but not limited to invoices of manufacturers and suppliers. i. NETWORTH is the excess of assets over liabilities. and the net amount paid by the finance company for such purchase or assignment. or assignment to.First Class Cities outside Metro Manila 3) 2.12. and in case of a partnership. service charges. including any incidental expenses and a margin of profit. net of appraisal surplus. and booked valuation reserves. Financing companies shall be organized in the form of: stock corporations in accordance with the provisions of the Corporation Code of the Philippines (Batas Pambansa Blg. a financing company in an amount or for a consideration less than the outstanding balance of the open accounts. interest and other charges incident to the extension of credit. promissory notes.000. exclusive of fees. over the lease period. but with no obligation or option to the part of the lessee to purchase the leased property at the end of the lease contract. while CAPITAL CONTRIBUTION refers to the total contributions of the partners in a partnership. At least sixty percentum (60%) of the outstanding capital stock of the corporation. LEASING shall refer to the financial leasing which is a mode of extending credit through a non-cancellable contract under which the lessor purchases or acquires at the instance of the lessee heavy equipment. shall be made in cash or in property of at least: 1) P10. and capital contribution in case of partnerships. are purchased by. A minimum paid-up capital. RECEIVABLES FINANCING is a mode of extending credit through the purchase by. insurance and preservation thereof. overstatement of assets and unrecorded liabilities.Second Class Cities and First Class Municipalities Manual of Regulations for Non-Bank Financial Institutions . DISCOUNTING is a type of receivables financing whereby evidences of indebtedness of a third party. business and office machines. together with a schedule of discounting.000. as the case may be.000 2. Third Class Municipalities and below In case the area where the principal office of a financing company is located has been upgraded. or in the managing partners.000 . No. cashier and administrative officer. 5) Answers to the questionnaire of the Commission.000.000 1.000 625.000.000. branch manager.000 5. officers with the rank of Vice-President and up or their equivalent or managing partners.000 3. 4) Personal Information Sheet of each of the directors.a.. as amended. 2) By-laws.000 875.000 2.000.000.A.000.000.Third Class Cities and Second Class Municipalities 5) 500. or managing partner such as the following: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-19 . or "finance and investment company" or other title or word(s) descriptive of its operations and activities as a financing company. signed under oath by its President/Managing Partner. At least two-thirds of all the members of the board of directors in the case of a corporation and all the managing partners in case of a partnership shall be citizens and residents of the Philippines. Sec. together with the following documents in the prescribed forms: 1) All documents required for registration as a corporation or partnership.000.12. shall be reported to the Commission within seven (7) working days thereafter. c. 3. and 4 hereof.000.000 ."finance company". Requirements for Registration a.000 6-30-96 10. the corresponding increase in capitalization requirement shall be undertaken within such period as the Commission shall fix.000 4. d.000.4 and 7 and Section 5.3.000. extension office or unit may operate subject to the provision of Section 5 thereof.000 Any existing and/or new branch. and the requirement prescribed under Section 3.31 4) 1. Q-19 05.000 2.APP.000 1.Any corporation or partnership may be registered as a financing company by filing with the Commission in five (5) copies an application to operate as a financing company under R.000 6-30-94 6.000 750.Fourth Class Cities. or composition of. agency.000.000 6-30-95 8.500. officers from the rank of VP and up or their equivalent. Any change in the membership in.a. all financing companies with a paid-up capital or capital contribution less than that mentioned above shall be given five (5) years within which to build up their capital requirement according to the following schedule: Metro Manila Area 1st Class Cities Out side Metro Manila 3rd Class 2nd Class Cities & 1st Class Municipalities Cities & 2nd Class Municipalities 500.000 6-30-93 4.500.000.000 1. 5980.000 6-30-92 2. 6) Projected balance sheet.000 1. The corporate/partnership name of financing companies shall contain the term "financing company". leasing and other financing activities and all related income therefrom. 3) Information Sheet of registrant company. officer to be appointed from the rank of Vice-President and up or their equivalent. Unless otherwise authorized by the Commission. factoring. Registration papers to be submitted to the Commission .Page 3 .000 500. the board of directors. shall be submitted within thirty (30) working days from date of the aforesaid change. income statement and cash flow statement for three (3) years. 7) Documents required of each director. Sec. other existing laws. hereof. if any. and 3) Proof of the publication and posting of the notice and order for registration is in accordance with Sec. b) NBI clearance. b. direction and administration of the applicant. If after the hearing. 4. as amended. 5980. any proposed financing company if it is satisfied that the establishment of such company will promote public interest and convenience. and issue the Certificate of Authority to Operate to. c) Certificate of good moral character to be executed under oath by at least two (2) reputable and disinterested persons in the community. 1) All the requirements of R. Issuance of Certificate of Filing of Articles of Incorporation and By-Laws. 5980. Q-19 05.12. personally or through counsel. Opposition to Registration. among others. d) Bank credit information to be issued by his depository or creditor bank(s).APP. the Commission finds that the requirements of R. and the names and residences of its directors or managing partners. and on the basis of the documents and/or evidences submitted. that. No. c. and 8) Such other documents as may be required by the Commission whenever it deems necessary. Certificate of Authority. if any Any interested party may oppose the registration of a financing company in writing. The notice shall state. and applicable rules and regulations to engage in the business for which the applicant is proposed to be incorporated. the Commission shall take appropriate action on said application. Publication and Posting of Notice and Order for Registration .000.Upon receipt of the above registration papers of a proposed financing company. the name of the proposed financing company. Conditions for Commencement of Operations a.Page 4 application. as amended. shall register the articles of incorporation and by-laws or articles of partnership of. A. its implementing rules and regulations and other pertinent laws have been complied with and that no valid reason exists for the disapproval of the Q Regulations Appendix Q-19 . No.00) Pesos unless its nonoperation is reasonably justified. Failure to operate within the prescribed ninety (90) days period shall subject the financing company to a fine of not less than One Thousand (P1. 3. the capital structure in case of a corporation or the total capital contribution in case of a partnership.31 a) Police clearance from local police of the city or municipality of which he is a resident. and the notice shall simultaneously be posted in a public and conspicuous place where the principal office of the company will be located and in the Office of the Commission for the same period. shall commence operations within ninety (90) days from date of grant of such certificate. c. The financing company may be granted a grace period of another ninety Manual of Regulations for Non-Bank Financial Institutions . have been complied with. or organized. as determined by the Commission. A corporation or partnership which has been duly registered. within fifteen (15) days after the last date of the publication of the notice. in consultation with the Central Bank.b. the Commission shall cause the notice and order to be published by the applicant company at its expense in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks. b. presumably assure the protection of the interest of the general public. A. The Commission. and granted a Certificate of Authority to Operate as a financing company in accordance with the law and these Rules. as well as the integrity and responsibility of the organizers and administrators. 2) The organization. Agencies. 5) Copy of the proposed personnel chart.Page 5 . after due hearing at the discretion of the Commission. extension offices or units shall also be subject to applicable Central Bank regulations. extension office or unit without a prior certificate of authority to be issued by the Commission. their branches.000) Pesos or revocation of the certificate of authority.. Q-19 05. 5.c.b. to absorb new entities engaged in financing.The number of branches. agency. c. extension office or unit shall be coterminous with that of the head office. agency. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-19 .12. Evaluation Guideposts . Sec.No financing company shall establish or operate a branch. unless its non-operation is reasonably justified as determined by the Commission. Extension Offices or Units a. Sec. extension office or unit shall operate within ninety (90) days from the issuance of the certificate of authority and failure to operate within such period shall subject said branch. e. after notice and hearing. agency or unit will be established. agency. agency. extension office.The certificate of authority to operate a branch. extension office or unit shall be established. agencies. agency. but in no case less than P250. d. The application for authority filed under this section shall be accompanied by the following documents: 1) Information Sheet of the proposed branch. Term of Authority to Operate . shall be charged for the issuance of the Certificate of Authority to Operate as a financing company. Sec. 2) Answer to SEC questionnaire. and 6) Such other documents as may be required by the Commission whenever it deems necessary. Additional Capital Requirement . extension offices or units in an amount to be determined by the Commission.b. Certificate of Authority . 6.31 (90) days from the expiry date of the first ninety (90) days within which to commence operations notwithstanding its failure to operate as aforestated.APP. cashier. extension office or unit to a fine of not less than One Thousand (P1. A fee of one-tenth of one percent (1/10 of 1%) of the additional required capital under Sec. of these Rules. agency. 7. agencies. 3) Police clearance of the manager. to revoke its Certificate of Authority. as may be determined by the Commission. However. 5. b. Prescribed Period to Operate Such branch.Financing companies duly licensed to operate as such. The above application shall be published in accordance with the provisions of Sec. Applicability of Central Bank Regulations . the Notice and Order shall be posted in a public and conspicuous place where the aforesaid branch. and administrative officer of the proposed branch. agencies. extension office or unit of such financing company. 3.A financing company may be required to put up additional capital for branches. cashier and administrative officer of the proposed branch.00 shall be charged likewise for the issuance of original Certificate of Authority of each branch. extension offices or units to be established shall depend upon the capacity of the company to conduct expanded operations and/or upon the capacity of the area wherein the proposed branch. Branches.A fee of 1/10 of 1% of the minimum paid-up capital or capital contribution required under Section 2. Failure to operate within the extended period shall empower the Commission. Licensing Fees . 4) NBI clearance of the branch manager. sale or assignment by financing companies of evidences of indebtedness shall be in accordance with the rules of the Commission on registration of commercial papers.12. to cover placements with. b. pursuant to the provisions of Section 5 of R.The company's networth shall be maintained at an amount not less than that required under Sections 2. financing companies without quasi-banking license shall not issue instruments other than promissory notes. That the negotiation of evidence of indebtedness to pension funds or educational assistance funds shall be on a recourse basis. pension and retirement funds approved by the Bureau of Internal Revenue. accounts receivable or other evidences of indebtedness. b. as amended by P. b. 12. investment companies. service and other charges of financing companies on assignments of credit. 10. Financing companies may engage in direct lending if authorized by the secondary purposes in its articles of incorporation and in accordance with Section 42 of the Corporation Code of the Philippines (B. educational assistance funds established by the National Government. Financing companies shall not act as dealers of certificates of time deposit.31 Sec.P. Sec. 11. fees. 13. c. b. the lease receivables of.APP. Other Activities a. Accounts which have been factored or discounted by. factoring of accounts receivable or other evidences of indebtedness.A. Sec. a financing company shall not be sold. and other evidences of indebtedness (not covered in Item a. and 5. 8.Page 6 functions shall not act as dealers in commercial papers but may act as dealers in other securities provided they are duly licensed by the Commission as such.c. The negotiation. government financial institutions. No corporation shall be allowed to include financing activities as herein defined as one of its secondary purposes. No. above) issued or negotiated to. or leasing transactions shall be in accordance with the rules prescribed by the Monetary Board. Sec. assigned or transferred in any manner except to banks including their trust accounts. Networth for Operating Financing Companies . 1454. Financing companies not duly authorized to perform quasi-banking Q Regulations Appendix Q-19 . purchases of installment papers. A. No person.D. NSSLAs. in consultation with the Commission. or borrowing by. hereof.The purchase discounts. partnership or corporation shall do or hold itself out as doing business as a financing company or finance and investment company or under any other title or name tending to give the public the impression that it is a financing company unless so authorized under R. Except in cases of issuances to primary institutional lenders. association.b. the total investment in real estate and in shares of stock in a real estate development corporation and other real estate based projects shall not at any time exceed twenty-five (25%) per cent of the net worth of the investing financing company. investment houses including their trust accounts. Manual of Regulations for Non-Bank Financial Institutions . Loans and Investments a. Sec. insurance companies. 5980. trust companies. No. 68). Provided. quasi-banks. PurchaseDiscount/Fees/ Service and Other Charges . Conveyance of Evidences of Indebtedness and Financed Receivables a. Sec. as amended. No. 5980. 9. Q-19 05. financing companies. Prohibitions a. Unless otherwise authorized by the Commission. them. and stockholders.APP. A fine in accordance with the guidelines that the Commission shall issue from time to time. and these Rules and Regulations. Transitory Provision . 15. The imposition of the foregoing administrative sanctions shall not preclude the institution of appropriate action against the officers and directors of the financing company or any person who might have participated therein. A. That respective collateral/s (if any) for past due accounts over 1 year and litigation items shall be adequately disclosed in the aforementioned Schedules and b) list of officers. Other sanctions within the power of the Commission and the Central Bank under existing laws. Q-19 05. certificates of authority issued by the Commission. Suspension or revocation of the certificate of authority to operate as a financing company after proper notice and hearing. payable (indicating likewise the same maturing pattern of within 1 year and over 1 year) and off-balance sheet items. decision or ruling.Page 7 . however. or continuously fail to comply with SEC requirements. directly or indirectly. on its own motion or upon verified complaint of any aggrieved party. Sec. or any Commission order. Immediately upon the issuance of an ex-parte Cease and Desist Order. The issuance of such Cease and Desist Order automatically suspends the authority to operate as a financing company. 14.12. Cease and Desist Order . Provided. No. subject to the terms and conditions of the license. 17. Sec. issue a Cease and Desist Order exparte. past due accounts to subdivided further to past due accounts within 1 year. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-19 . 5980. due over 1 year to be applicable to long term receivables only.If the Commission finds that there is a violation of these Rules and Regulations and their implementing circulars or any of the terms and conditions of the Certificate of Authority to operate as a financing company. shall be considered as registered and licensed under the provisions of these Rules. the Commission shall notify the parties involved and schedule a hearing on whether to lift such order or to impose administrative sanctions provided for in Section 16 not later than fifteen (15) days after service of notice. Administrative Sanctions .Any corporation/partnership at the time of the effectivity of these Rules has been registered and licensed by the Commission to operate as a financing company. They shall. over 1 year and litigation items). decision or ruling thereof. as amended. Periodic Reports . directors. the Commission shall. or of any order. together with the schedule of aging of receivables (indicating the maturity pattern of the aforesaid receivables under due within 1 year. in its discretion.The Commission may. 16. impose any or all of the following sanctions: a. likewise. in violation of R. or refuses to have its books of accounts audited. c. if the violation(s) mentioned in the preceding sections may cause grave or irreparable injury to the public or may amount to culpable fraud or violation of these Rules and Regulations.31 Sec. b. file four (4) copies of their audited financial statements within 120 days after the end of their fiscal years and such other reports as may be required by the Commission. Sec.Every financing company shall file with the Commission the following quarterly reports: a) Statement of Condition and Statement of Income and Expenses. implementing circulars. These reports shall be signed under oath by the company's principal executive officer and principal financial officer and shall be submitted within thirty (30) calendar days after the end of each quarter. 12. Metro Manila. Provided. said corporation/ partnership shall. Q-19 05. Q Regulations Appendix Q-19 .31 and shall be governed by the provisions hereof. LOPEZ Chairman Securities and Exchange Commission Manual of Regulations for Non-Bank Financial Institutions . unless otherwise herein provided. That financing companies with existing certificate of authority shall surrender the same to the Commission upon payment of the annual fee pursuant to Section 7 hereof to be replaced by new certificate of authority and. Provided.These Rules and Regulations shall take effect fifteen (15) days after publication in two (2) newspapers of general circulation in the Philippines.) ROSARIO N. however. be given a period of not more than one (1) year from the effectivity of these Rules within which to comply with the same. Mandaluyong. (SGD. 18.Page 8 Sec. That where such corporation/ partnership is affected by the new provisions hereof. Effectivity . Philippines 16 October 1991.APP. those financial assets and financial liabilities which. the BSP desires to align local financial accounting standards with international accounting standards as prescribed by the International Accounting Standards Board (IASB) to the greatest extent possible. upon initial recognition. An FI shall not classify any debt security as HTM if the FI has. 3. encourage sound risk management practices. at least eighty-five percent (85%)] of the security’s original principal through scheduled payments or prepayments. c. d.. Depending on the intent.APP. or (c) are attributable to an isolated event that is beyond the FI’s control. 4391Q. is non-recurring and could not have been reasonably anticipated by the FI. and (2) those that the FI designates as Available-for-Sale Securities . ACCOUNTING PROCEDURES. Towards these ends. those that are part of hedging relationship. Held to Maturity (HTM) Securities . b.12. those that are classified as loans and receivables. less than three (3) months before maturity) that changes in the market rate of interest would not have a significant effect on the security’s fair value. That sales or reclassifications of less than one percent (1%) shall be evaluated on case-to-case basis. during the current financial year or during the two (2) preceding financial years.e. Sec. Statement of Policy. investments in debt and equity securities shall be classified into one (1) of four (4) categories and accounted for as follows:1 1 a. and stimulate the domestic capital market. It also does not include accounting for derivatives and non-derivative financial instruments other than debt and equity securities.. Q-20 08.e. those that are hybrid financial instruments. Reclassification allowed until 30 Nov. those financial liabilities that are held for trading.These are debt securities with fixed or determinable payments and fixed maturity that an FI has the positive intention and ability to hold to maturity other than: (1) those that meet the definition of Securities at Fair Value Through Profit or Loss. 2005 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-20 . are designated by the FIs as at fair value through profit or loss. It is the policy of the BSP to promote full transparency of the financial statements of banks and other supervised institutions in order to strengthen market discipline. 2. For this purpose. (b) occur after the FI has substantially collected all [i. sold or reclassified more than an insignificant amount of HTM investments before maturity (more than insignificant in relation to the total amount of HTM investments) other than sales or reclassifications that: (a) are so close to maturity or the security’s call date (i. VALUATION AND SALES AND TRANSFERS OF INVESTMENTS IN DEBT SECURITIES AND MARKETABLE EQUITY SECURITIES (Appendix to Subsec.31 CLASSIFICATION.3) Section 1. and e. the phrase “more than an insignificant amount” refers to sales or reclassification of one percent (1%) or more of the outstanding balance of the HTM portfolio: Provided. 2005 as per MAB dated 23 Nov. This Appendix covers accounting for investments in debt and equity securities except: a. Scope. Sec. The foregoing exceptions and exclusions shall be covered by separate regulations. Investments in Debt and Equity Securities. however.Page 1 . Q Regulations Appendix Q-20 . This provision shall be applied prospectively. provided the FI’s approach to assigning internal ratings and changes in those ratings give a consistent. Q-20 08. liquidity needs. for example. Similarly. (iii) A major business combination or major disposition (such as sale of a segment) that necessitates the sale or transfer of HTM securities to maintain the FI’s existing interest rate risk position or credit risk policy: Provided. reliable and objective measure of the credit quality of the issuers. (b) the FI stands ready to sell the security (other than if a situation arises that is non-recurring and could not have been reasonably anticipated by the FI) in response to changes in market interest rates or risks. changes in those internal ratings may help to identify issuers for which there has been a significant deterioration in creditworthiness. further.e. the deterioration in creditworthiness is often regarded as significant. shall subject the FI and concerned officers to penalties and sanctions provided under 4391Q. Securities held in compliance with BSP regulations. In this case. e. That prior BSP approval is required for sales or transfers occurring after the prescribed six (6)-month time frame.APP... a sale following a downgrade in a credit rating by an external rating agency would not necessarily raise a question about the FI’s intention to hold other investments to maturity if the downgrade provides evidence of a significant deterioration in the issuer’s creditworthiness judged by reference to the credit rating at initial recognition.12. 476 dated 16 February 2005) and thereafter. changes in financing sources and terms or changes in foreign currency risk.1 shall not apply to sales or reclassifications of the said securities booked under HTM. FIs shall submit to the appropriate department of the Manual of Regulations for Non-Bank Financial Institutions . the FI shall be prohibited from using the HTM account during the reporting year of the date of sales or reclassifications and for the succeeding two (2) full financial years. or (c) the issuer has a right to settle the security at an amount significantly below its amortized cost. if an FI uses internal ratings for assessing exposures. i. a.Positive intention and ability to hold investments in HTM securities to maturity – An FI does not have a positive intention to hold to maturity an HTM security if: (a) the FI intends to hold the security for an undefined period.1.Page 2 Sales before maturity could satisfy the condition of HTM classification and therefore need not raise a question about the FI’s intention to hold other HTM securities to maturity if they are attributable to any of the following: (i) A significant deterioration in the issuer’s creditworthiness.a. Further. may be classified either as HTM. securities held as liquidity reserves and for the faithful performance of trust duties. Securities Held-for-Trading (HFT) or Available for Sale: Provided. on prohibited sales or reclassifications occurring on 13 March 2005 (effectivity date of Circular No. Failure to reclassify the HTM portfolio to Available-for-Sale on the date of sales or reclassifications.g. That the sale or transfer of HTM security shall be done only once and within a period of six (6) months from the date of the business combination or major disposition: Provided. That the provision of Item (4) of paragraph 2 of Section 3.31 Sales or reclassifications before maturity that do not meet any of the conditions prescribed in this Appendix shall require the entire HTM portfolio to be reclassified to Available-for-Sale. (ii) A change in tax law that eliminates or significantly reduces the tax-exempt status of interest on the HTM security (but not a change in tax law that revises the marginal tax rates applicable to interest income). If there is evidence that an instrument is impaired. changes in the availability of and the yield on alternative investments.3. call and similar options) but shall not consider future credit losses. After initial recognition. Q-20 08. An FI does not have a demonstrated ability to hold to maturity an investment in HTM security if: (aa) it does not have the financial resources available to continue to finance the investment until maturity.APP.12. likewise satisfy the condition of HTM classification and therefore need not raise a question about the FI’s intention and ability to hold other HTM investments to maturity.Page 3 . an FI shall estimate cash flows considering all contractual terms of the security (for example. (iv) A change in statutory or regulatory requirements significantly modifying either what constitutes a permissible investment or the maximum level of particular types of investments. Sales before maturity due to events that are non-recurring and could not have been reasonably anticipated by the FI such as a run on a bank. and all other premiums or discounts.31 SES. or (bb)it is subject to an existing legal or other constraint that could frustrate its intention to hold the security to maturity. An FI assesses its intention and ability to hold its investment in HTM securities to maturity not only when those securities are initially recognized. in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a security (or group of securities). a. but also at each time that the FI prepares its financial statements. The calculation includes all fees and points paid to the other party to the contract that are an integral part of the effective interest rate. a plan stating the reason for the extension and the proposed schedule for the disposition of the HTM security. and through the amortization process. HTM securities shall be measured upon initial recognition at their fair value plus transaction costs that are directly attributable to the acquisition of the securities. The effective interest rate shall refer to the rate that exactly discounts the estimated future cash receipts through the expected life of the security or when appropriate. transactions costs include fees and commissions paid to agents (including employees acting as selling agents). For this purpose. brokers and dealers. prepayment. Transaction costs do not include debt premiums or discounts. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-20 . However. advisers. levies by regulatory agencies and securities exchanges. An FI shall assess at each time it prepares its financial statements whether there is any objective evidence that an HTM security is impaired. For this purpose. the FI shall use the contractual cash flows over the full contractual terms of the security. thereby causing an FI to dispose of an HTM security. transaction costs. a shorter period to the net carrying amount of the security. There is a presumption that the cash flows and the expected life of a group of similar securities can be estimated reliably. A gain or loss arising from the change in the fair value of the HTM security shall be recognized in profit or loss when the security is derecognized or impaired. (v) A significant increase in the industry’s regulatory capital requirements that causes the FI to downsize by selling HTM securities. or (vi) A significant increase in the risk weights of HTM securities used for regulatory risk-based capital purposes. and transfer taxes and duties. the effective interest method is a method of calculating the amortized cost of a security (or group of securities) and of allocating the interest income over the relevant period using the effective interest rate. financing costs or internal administrative or holding costs. an FI shall measure HTM securities at their amortized cost using the effective interest method. When calculating the effective interest rate.2. APP. Q-20 08. or (2) part of a portfolio of identified securities that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. b.31 If there is objective evidence that an impairment loss on HTM securities has been incurred. A gain or loss arising from a change in the fair value of HFT securities shall be recognized in profit or loss under the account “Trading Gain/(Loss)”. For this purpose.12. an FI shall adopt its own definition of short-term which shall be within a (twelve) 12-month period. If. or (d) Investment in Non-Marketable Equity Securities (INMES). The reversal shall not result in a carrying amount of the security that exceeds what the amortized cost would have been had the impairment not been recognized at the date Q Regulations Appendix Q-20 . and individually or collectively for HTM securities that are not individually significant. the amount of the loss is measured as the difference between the security’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the security’s original effective interest rate (i. b.1 Availabe-for-Sale securities shall be measured upon initial recognition at their fair value plus transaction costs that are directly attributable to the acquisition of the securities. An FI first assesses whether objective evidence of impairment exists individually for HTM securities that are individually significant. c. The amount of the loss shall be recognized in profit or loss.for. Available. HFT are debt and equity securities that are: (1) acquired principally for the purpose of selling or repurchasing them in the near term. As a practical expedient.Sale securities at their fair values.1 HFT securities shall be measured upon initial recognition at their fair value. it includes the asset in a group of HTM securities with similar credit risk characteristics and collectively assesses them for impairment. Securities at Fair Value through Profit or Loss – These consist initially of HFT securities. an FI shall measure Available.Page 4 the impairment is reversed. whether significant or not.Sale Securities. The carrying amount of the security shall be reduced through the use of an allowance account. After initial recognition. c. the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating).Sale or are not classified/designated as (a) HTM. Said definition which shall be included in its manual of operations. a creditor may measure impairment of HTM securities on the basis of an instrument’s fair value using an observable market price. in a subsequent period. an FI shall measure HFT securities at their fair values without any deduction for transaction costs that it may incur on sale or other disposal. HTM securities that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. the previously recognized impairment loss shall be reversed by adjusting the allowance account. After initial recognition. the effective interest rate computed at initial recognition). shall be applied and used consistently.for. (b) Securities at Fair Value through Profit or Loss. without any deduction Manual of Regulations for Non-Bank Financial Institutions .for. Transaction costs incurred at the acquisition of HFT securities shall be recognized directly in profit or loss. If an entity determines that no objective evidence of impairment exists for an individually assessed HTM security. The amount of the reversal shall be recognized in profit or loss.e. These are debt or equity securities that are designated as Available. the fair value of a debt instrument classified as Availablefor-Sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.31 for transaction costs it may incur on sale or other disposal. and whose fair value cannot be reliably measured. For Available-for-Sale securities that are not monetary items (for example. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-20 . in a subsequent period. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as Available-for-Sale shall not be reversed through profit or loss. These are debt and equity securities purchased which have remained unsold/ locked-in from underwriting ventures on a firm basis. except for impairment losses and foreign exchange gains and losses. After initial recognition. An FI shall assess each time it prepares its financial statements whether there is any objective evidence that an INMES is impaired. until the security is derecognized. A gain or loss arising from the change in fair value of the INMES shall be recognized in profit or loss when the security is derecognized or impaired.APP. exchange differences resulting from changes in amortized cost are recognized in profit or loss and other changes in carrying amount are recognized directly in equity. UA account is applicable only to UBs and IHs. less any impairment loss on that security previously recognized in profit or loss. Q-20 08. the impairment loss shall be reversed. for such an Available-for-Sale security. The amount of the cumulative loss that is removed from equity and recognized in profit or loss shall be the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value.Sale equity security are recognized in profit or loss when the FI’s right to receive payment is established. INMES shall be measured upon initial recognition at its fair value plus transaction costs that are directly attributable to the acquisition of the security. INMES .12. the cumulative loss that had been recognized directly in equity shall be removed from equity and recognized in profit or loss even though the security has not been derecognized. Accordingly. an FI shall measure INMES at cost. If.Underwriting Accounts (UA) shall be a sub-account under Available-for-Sale. d.2. it shall be treated as if it were carried at amortized cost in the foreign currency. at which time the cumulative gain or loss previously recognized in equity shall be recognized in profit or loss. c.Page 5 . the gain or loss that is recognized directly in equity includes any related foreign exchange component. When a decline in the fair value of an Available-for-Sale security has been recognized directly in equity and there is objective evidence that the asset is impaired. interest calculated using the effective interest method is recognized in profit or loss. An FI shall assess at each time it prepares its financial statements whether there is any objective evidence that an Available-for-Sale security is impaired. For the purpose of recognizing foreign exchange gains and losses on a monetary Available-for-Sale-security that is denominated in a foreign currency. However. A gain or loss arising from a change in the fair value of an Availablefor-Sale security shall be recognized directly in equity under the account “Net Unrealized Gains/(Losses) on Securities Available-for-Sale” and reflected in the statement of changes in equity. Dividends on an Availablefor. with the amount of the reversal recognized in profit or loss. equity instruments).These are equity instruments that do not have a quoted market price in an active market. and only when. c. it shall be reclassified as Available-for-Sale and remeasured at fair value.c.12. Sec. it shall be reclassified as Available-for-Sale and remeasured at fair value. f. it becomes appropriate to carry the equity security at cost (i.1.e.a.1 shall be amortized to profit or loss over the remaining life of the HTM using the effective interest method. the FI becomes a party to the contractual provisions of the financial instrument. The method used is applied consistently for all purchases and sale of financial assets that belong to the same category. an FI may opt to book the mark-to-market valuation every end of the month: Provided. On such reclassification. HTM) rather than at fair value (i.1 shall remain in equity until the security is sold or otherwise disposed of. An FI shall not reclassify a security into or out of the Fair Value through Profit Loss category while it is held. That an adequate mechanism is in place to determine the daily fair values of securities.1. Any previous gain or loss on that equity security that has been recognized directly in equity in accordance with Section 3. d. A regular way purchase or sale of financial assets shall be recognized and derecognized. Whenever sales or reclassifications of more than an insignificant amount of HTM investments do not meet any of the conditions in Section 3. as a result of a change in intention or ability. INMES) rather than at fair value (i. For Securities at Fair Value through Profit or Loss and Available-for-Sale. If.1. Available-for-Sale). and the difference between its carrying amount and fair value shall be accounted for in accordance with Section 3. any gain or loss that has been recognized directly in equity is recognized in profit or loss in accordance with Section 3. Such impairment loss shall not be reversed.e. and the difference between its carrying amount and the fair value shall be accounted for in accordance with Section 3. If a reliable measure becomes available for an INMES. 1 Q Regulations Appendix Q-20 . Q-20 08.1.c. the amount of impairment loss is measured as the difference between the carrying amount of the security and the estimated future cash flows discounted at the current market rate of return for a similar financial instrument.a have passed. b. any remaining HTM investments shall be reclassified as Available-for-Sale. it becomes appropriate to carry the debt security at amortized cost (i. Available-for-Sale). If. Any difference between the new amortized cost and maturity amount shall also be amortized over the remaining life of the security using the effective interest method. e.c. when it shall be The guidelines governing the reclassification of financial assets between categories in accordance with the provisions of the October 2008 amendments to PAS39 and PFRS7 are shown in Annex A.Page 6 Manual of Regulations for Non-Bank Financial Institutions . as applicable using trade date accounting or settlement date accounting. Reclassifications1 a. the fair value carrying amount of the security on that date becomes its new amortized cost. in the rare circumstance that a reliable measure of fair value is no longer available.c. it is no longer appropriate to classify a debt security as HTM.c.31 If there is objective evidence that an impairment loss has been incurred on an INMES. If the security is subsequently impaired. Any previous gain or loss on that debt security that has been recognized directly in equity in accordance with Section 3.c. An FI shall recognize an investment in debt or equity security on its balance sheet when. as a result of a change in intention or ability. If. 4. the difference between the carrying amount and fair value shall be accounted for in accordance with Section 3.e. the fair value carrying amount of the security on that date becomes its new cost. similar to the amortization of a premium and a discount. an FI is required to book the mark-to-market valuation on a daily basis.e. However.APP. or because the two (2) preceding financial years’ referred to in Section 3. g. The disappearance of an active market because an FI’s held securities are no longer publicly traded is not evidence of impairment. or f.APP. a breach of contract.e. If the financial asset is subsequently impaired. Objective evidence that the security is impaired includes observable data that comes to the attention of the holder of the security about the following loss events: a. although the decrease cannot yet be identified with the individual securities in the portfolio. other than for reasons specified in Items “a(a)” to “a(c)” of Section 3 of this Appendix: Provided. and only if. observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of securities since the initial recognition of those assets.1.Page 7 . no matter how likely. Impairment. A debt or equity security is impaired and impairment losses are incurred if. Q-20 08. The following securities booked under the HTM category.c. are not recognized.31 recognized in profit or loss. Available-for-Sale securities). Sec. granting to the issuer a concession that the FI would not otherwise consider. of itself. 5. the disappearance of an active market for that security because of financial difficulties. A decline in the fair value of a security below its cost or Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-20 . which were reclassified from the HTM category in view of the increased risk-weights of said securities under Appendix 63b within thirty (30) calendar days after 10 February 2007. any previous gain or loss that has been recognized directly in equity is recognized in profit or loss in accordance with Section 3. That securities rejected under items “i” and “ii” shall continue to be booked under the HTM category: i. Foreign currency denominated NG/BSP bonds/debt securities. The subject securities once reclassified shall be accounted for in accordance with the measurement requirements of their new category (i. although it may be evidence of impairment when considered with other available information. Securities offered and accepted in the Global Bond Offering of the Republic of the Philippines. there is objective evidence of impairment as a result of event that occurred after the initial recognition of the security (a “loss event”) and that loss event has impact on the estimated future cash flows of the securities. evidence of impairment. for economic or legal reasons relating to the issuer’s financial difficulty. it becoming probable that the issuer will enter bankruptcy or other financial reorganization. b. ii. including: (1) adverse change in the payment status of issuers in the portfolio. d. A downgrade of an issuer’s credit rating is not. and iii. e. outstanding as of 10 February 2007.. or (2) national or local economic conditions that correlate with defaults on the securities in the portfolio. such as a default or delinquency in interest or principal payments. shall be exempted from the “tainting” provision for prudential reporting purposes which prohibits FIs from using the HTM category and requires reclassification of the entire HTM portfolio to the Available-for-Sale category during the reporting year and for the succeeding two full financial years whenever an FI sells or reclassifies more than an insignificant amount of HTM investments before maturity. c. significant financial difficulty of the issuer or obligor. Securities exchanged pursuant to the Domestic Debt Exchange Offer of the Republic of the Philippines.12. Losses expected as a result of future events. the FI. 6. a decline in fair value of an investment in debt security that results from an increase in the risk free interest rate). In addition to the types of events enumerated in Items “a” to “f” in this Section. Sec. 546 dated 21 September 2006 and 509 dated 01 February 2006) Manual of Regulations for Non-Bank Financial Institutions .APP. 628 dated 31 October 2008. market. Securities at Fair Value through Profit or Loss.Page 8 investment in the equity instrument may not be recovered. (As amended by Circular Nos. The FI shall maintain an operations manual for booking and valuation of HTM. objective evidence of impairment for an investment in an equity instrument includes information about significant changes with an adverse effect that have taken place in the technological.31 amortized cost is not necessarily evidence of impairment (for example. 558 dated 22 January 2007. economic or legal environment in which the issuer operates and indicates that the cost of the Q Regulations Appendix Q-20 . 626 dated 23 October 2008. Q-20 08. A significant or prolonged decline in the fair value of an investment in an equity security below its cost is also objective evidence of impairment. Operations Manual. Available for Sale and INMES.12. Page 1 . use the last available closing price. Marking-to-Market Guidelines To ensure consistency. However.2. If done rates are not available. B. a calculated price shall be used as prescribed herein. 5.* 3. If no mid rates are available. For all US$-denominated government and corporate securities Same as B. Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems (e.2. Other foreign-currency securities Same as B. Bloomberg. * Based on done rates if available. Municipal papers Latest available price for the day. in the absence of a market price. Reuters) 1. the following shall be used as bases in marking-to-market debt and equity securities: Type of Security Market Price Basis A. In case of halt trading/ suspension or holidays. Traded Abroad Latest available closing price from the exchange where the securities are traded. 2.APP. 4.3) General Principle As a general rule. In the absence of a price. Q-20a 07. US Treasuries Price as of end of day. use the bid rate. use the mid rate between bid and offer. Manila time.12. Equity Securities Listed in the Stock Exchange 1. 2.2. Traded in the Philippines Same day closing price as quoted at the Philippine Stock Exchange. 4391Q. to the extent a credible market pricing mechanism as determined by the BSP exists for a given security. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-20a . Freddie Macs. that market price shall be the basis of marking-to-market. use average quotes of at least three (3) regular brokers/market makers. Manila time.g.. Brady Bonds Same as B. US Agency papers such as Fannie Maes. Ginnie Maes.31 ESTABLISHING THE MARKET BENCHMARKS/REFERENCE PRICES AND COMPUTATION METHOD USED TO MARK-TO-MARKET DEBT AND MARKETABLE EQUITY SECURITIES (Appendix to Subsec. the best firm bid per benchmark tenor shall be used in calculating the benchmark: Provided. the credit risk rating of the securities involved given by a BSP-recognized credit risk rating agency shall be established and taken into account whenever available. all data on done and firm bids/offers must be credible and verifiable and preferably sourced from trade executions and reporting systems that are part of a regulated and organized market duly licensed by the SEC where the data contributors are bound to uphold the principles of transparency.Page 2 their commitments and for possible market manipulation and enforce sanctions on errant participants and immediately inform BAP and the BSP thereon. Monitor the quality of the contributed source rates for the benchmark. that fail to meet commitments to the benchmark. 3. and 4. In the absence of such credit risk rating. That these are well-justified by sound risk analysis principles. alternative analyses may be used: Provided. In determining the risk premium. To ensure the integrity of the benchmark or reference prices. Q-20a 07. Manual of Regulations for Non-Bank Financial Institutions . the Calculation Agent shall perform the following: 1. The benchmark or reference rate shall be computed and published in accordance with prescribed guidelines on the computation of reference rates by a Calculation Agent which is recognized by the Bankers Association of the Philippines (BAP): Provided. Accordingly. 2. including documentation and publications thereof. Peso-Denominated Private Debt Securities The basis for marking-to-market pesodenominated debt securities traded in an organized market shall be the same as those used in Peso-Denominated Government Securities in Section D above. Monitor the data contributors and replace participants. upon consultation with the BAP. That the best firm offer per benchmark tenor shall likewise be included as soon as permissible under securities laws and regulations. Review and upgrade the benchmark setting methodology upon consultation with BAP on a continuing basis. Peso-Denominated Government Securities The benchmark or reference prices shall be based on the weighted average of done or executed deals in a trading market registered with the SEC.31 C.APP. the marked to market value shall be based on the corresponding government security benchmark plus risk premium. In the absence of done deals. D. Foreign Currency Denominated Debt Securities Traded in a Local Registered Exchange or Market The basis for marking-to-market foreign currency-denominated debt securities traded in a local registered exchange or market shall be the same as those used in Peso-Denominated Government Securities in Section D below. That both the Calculation Agent and its method of computation are acceptable to the BSP.12. fair trading and best execution. For private debt securities which are not traded in an organized market. The corresponding government security benchmark shall be determined according to Section D above. Monitor the activities of the participants to ensure compliance with Q Regulations Appendix Q-20a . E. 12.3: Provided. Q-20a 07. interpolated yields derived from the benchmark or reference rates in accordance with the BSP .approved guidelines for computation of reference rates in Section D above shall be used. 4391Q.APP. (As amended by M-2007-006 dated 28 February 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-20a .31 Other Guidelines For the market valuation of securities with odd tenors.Page 3 . Penalties and Sanctions FIs and the concerned officers found to have violated the provisions of these regulations shall be subject to the penalties prescribed under Subsec. That non-compliance with the above guidelines may be a basis for a finding of unsafe and unsound banking practice. Using Annex 1-A. The document will authorize the BTr and the BSP to credit the DDA of the trust institution with BSP-Accounting for coupons/interest payments on securities in the BSP-SES RoSS accounts and to debit the DDA for the monthly fees payable to BTr for maintaining its client securities accounts with BSP-SES.Registry of Scripless Securities BSP . A trust institution which does not have a DDA with the BSP-Accounting shall designate a settlement bank which will act as conduit for transferring securities for trust duties to the BSP-SES account and for paying interest.refers to uncertificated securities issued by the Bureau of the Treasury (BTr) that are under the BTr’s Registry of Scripless Securities Trust institution . 3. The BSP-SES shall file with BTr an application to open a RoSS Principal Securities Account where RoSS securities of trust institutions used as security deposit for trust duties shall be held.Page 1 . BSP-SES shall use Annex 1 for this purpose.refers to an entity that is authorized to engage in trust business BTr .Government Securities Eligible Dealer of the BTr DDA .Bangko Sentral ng Pilipinas BSP-SES . 4415Q) Definition of Terms and Acronyms Scripless securities and RoSS securities .APP. Each trust institution shall accomplish an “Autodebit/Autocredit Authorization” for its client securities account under the BSP-SES RoSS account.Bureau of the Treasury RoSS . Q-21 05. It will also authorize Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-21 . 4405Q and Sec.31 GUIDELINES ON THE USE OF SCRIPLESS (RoSS) SECURITIES AS SECURITY DEPOSIT FOR THE FAITHFUL PERFORMANCE OF TRUST DUTIES (Appendix to Sec. interest coupons and redemption proceeds.refers to the regular demand deposit account of a bank/quasi-bank with BSP-Accounting MOR . BSP-SES shall also apply for a Client Securities Account (sub-account) for each trust institution under its RoSS Principal Securities Account to enable BSP-SES to keep track of the security deposit. The trust institution shall inform the appropriate supervising and examining department (SED) of the BSP of the designation of a settlement bank. 4. A trust institution which has a DDA with BSP-Accounting shall act as its own settlement bank.Manual of Regulations for NonBank Financial Institutions Appropriate supervising and examining department or responsible supervising and examining department refers to the Department of Thrift Banks and Non-Bank Financial Institutions A.Accounting Department of BSP GSED .000 each month per account. Basic Requirements 1.Supervisory Reports and Studies Office of BSP-SES BSP-Accounting .12. BTr shall maintain Client Securities Accounts for P1.Supervision and Examination Sector of BSP SRSO . 2. 4405Q.Page 2 reimburse BSP-SES for whatever expenses that may be incurred in connection with the subscription. 4404Q. the designated alternate officer) of the appropriate SED of SES. Every trust institution must ensure that it has adequate security deposit for trust duties pursuant to the provisions of Subsecs. the department shall recommend the imposition of sanctions and/or any other appropriate action to higher authorities. in the event such securities mature while lodged in the RoSS account of BSP-SES. 5. (Box “a” shall be checked by a new trust institution that is making an initial security deposit pursuant to Subsec.31 the BTR and BSP to credit the deposit account of BSP-SES with BSP-Accounting for the redemption proceeds of securities that mature while in the BSP-SES RoSS account. the responsible SED of BSP-SES shall determine. Trust institutions may be required to Q Regulations Appendix Q-21 .A c c o u n t i n g representing credits for the redemption value of security deposit of trust institutions that have matured while in the RoSS account of BSP-SES. 9.3 and 4405Q. the designated alternate officer) of the appropriate SED of SES. The trust institution shall electronically instruct BTr to transfer Manual of Regulations for Non-Bank Financial Institutions . 4405Q. In case of deficiency. Q-21 05. SRSO shall also be responsible for keeping track of the BSP-SES deposit account with the B S P . 4405Q.) The advice should be sent by cc mail or by fax to be followed by an official letter duly signed by an authorized trust officer. SRSO shall instruct BTr to transfer securities out of the BSP-SES account and the corresponding client securities accounts of trust institutions only after receiving authorization from the Director (or in his absence.2. whether or not the trust institution’s security deposit for trust duties is sufficient pursuant to the provisions of the MOR mentioned above. 6. 2.APP. Procedures for Assigning RoSS Securities as Security Deposit for Trust Duties 1. SRSO shall be responsible for keeping track of the deposit and withdrawal of securities held under the BSP-SES Principal Securities Account and the Client Securities Accounts of the trust institutions. BTr shall also provide BSP-SES a monthly report of balances of each client securities account. SRSO shall maintain sub-accounts for each trust institution for the purpose. BSP-SES shall open a deposit account with BSP-Accounting where the redemption value of securities shall be credited.1.12.2 of the MOR. B.4 of the MOR. SRSO shall instruct BSPAccounting to transfer balances out of the deposit account and the corresponding subaccount of the trust institution only after receiving authorization from the Director (or in his absence. BSP-SES shall subscribe to the Telerate electronic trading system which is linked to BTr’s RoSS and cause the installation of a Telerate terminal at SRSO. BTr shall provide BSP-SES with the end-of-day transaction report whenever a transaction in any client securities account is made. Every quarter. The advice should be received by the BSPSES at least two (2) business days before the date of transfer using the prescribed form (Annex 3) and checking Box “b” of said form. 10. 8. A trust institution with a DDA with BSPAccounting shall use Annex 2-A while a trust institution with a settlement arrangement shall use Annex 2-B. 7. The trust institution shall advise the appropriate BSP-SES department that it will transfer RoSS securities to BSP-SES. based on the Report of Trust and Other Fiduciary Business and Investment Management Activities (BSP 7-26-23) submitted by the trust institution. At the end of the day. The advice should be received by the BSP-SES at least two (2) business days before the date of replacement using the prescribed form (Annex 3). In the case of a trust institution with a settlement arrangement. 3. The authority to allow the withdrawal should be transmitted to SRSO not later than the day after the replacement securities were transferred to the BSP-SES account. If in order. The BSP-SES department concerned shall immediately check from the report whether the securities transferred to the BSP-SES account are the same securities described in the advice (Annex 3) sent earlier. the instruction shall be coursed through the settlement bank and the securities shall come from the RoSS account of the same bank. The BSP-SES department concerned shall also advise the trust institution that it has approved the replacement of security deposit by using Annex 6 and checking Boxes “a” and “d” and the appropriate box under “d” depending on whether or not the trust institution has a settlement arrangement. 6. The advice should be sent by cc mail or by fax to be followed by an official letter duly signed by an authorized trust officer. The BSP-SES department concerned shall check from the report whether BTr effected the transfer indicated in the advice (Annex 3) sent earlier by the trust institution. Q-21 05. the department shall inform the trust institution immediately. The trust institution shall check Box “c” of the form and indicate the details of the securities to be withdrawn. the Director (or in his absence. 2. The responsible BSP-SES department shall verify whether the securities to be replaced are in the RoSS account of BSP-SES and the sub-account of the trust institution and whether the book value of the securities to be deposited is equal to or greater than those to be withdrawn. BTr shall effect the transfer upon verification of RoSS balances. SRSO shall provide the appropriate BSP-SES department a copy of the report. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-21 . 5. The Department concerned shall use Annex 5 and check Boxes “a” and “d”.31 securities from its own RoSS accounts to the BSP-SES RoSS and its corresponding Client Securities Account on the specified date. 3. 4. C. 4.Page 3 . The department concerned shall immediately communicate with the trust institution in case of a discrepancy. BTr shall effect the transfer upon verification of RoSS balances. the instruction shall be coursed through the settlement bank and the securities shall come from the RoSS account of the same bank. BTr shall transmit a transaction report to SRSO containing the transfer. BTr shall transmit a transaction report to SRSO containing the transfer. 5. In the case of a trust institution with a settlement arrangement. Should there be any discrepancy. the designated alternate officer) of the department concerned shall authorize SRSO to instruct BTr to transfer the securities specified to be withdrawn from the BSP-SES account to the trust institution’s (or the settlement bank’s) RoSS account. The trust institution shall electronically instruct BTr to transfer securities from its own RoSS account to the BSP-SES RoSS accounts and its corresponding Client Securities Account on the specified date. The trust institution shall advise the appropriate SED of BSP-SES that it will replace existing RoSS securities assigned as security deposit.12.APP. SRSO shall immediately provide the appropriate BSP-SES department a copy of the report. At the end of the day. Procedures for Replacing RoSS Securities 1. 5. On maturity date. Procedures for Crediting and Withdrawing the Redemption Value of Matured Securities that are in the BSPSES RoSS Account 1. 2. 4. The advice should be received by the BSP-SES at least two (2) banking days before the date of withdrawal using the prescribed form (Annex 4) and indicating therein details of the securities to be withdrawn. Should there be any discrepancy. 3. On coupon or interest payment date. The BSP-SES department concerned shall check from the report whether BTr effected the withdrawal stated in the advice (Annex 4) sent earlier by the trust institution. F. 8. The Department concerned shall use Annex 5 and check Q Regulations Appendix Q-21 .Page 4 Boxes “b” and “d”. the designated alternate officer) of the department concerned shall authorize SRSO to instruct BTr to transfer the securities specified to be with-drawn from the BSP-SES account to the trust institution’s own RoSS account (or its settlement bank). Procedures for Crediting Interest Coupon Payments. The responsible BSP-SES department shall check from the report whether BTr effected the transfer/ withdrawal. Procedures for Withdrawing RoSS Securities 1. At the end of the day.31 7. The authority to allow the withdrawal should be transmitted to SRSO not later than the date of the withdrawal indicated in the advice (Annex 4) sent earlier by the trust institution. On the same day. BTr shall effect the transfer/ withdrawal. The trust institution shall advise the appropriate BSP-SES department that it will withdraw existing RoSS securities assigned as security deposit. the department shall inform the trust institution immediately. SRSO shall instruct BTr to transfer the securities specified to be withdrawn from the BSPSES account to the RoSS account of the trust institution (or its settlement bank). SRSO shall instruct BTr to transfer the securities specified to be withdrawn from the BSPSES account to the RoSS account of the trust institution (or its settlement bank). BTr shall send to SRSO a report which contains the transfer/withdrawal. the Director (or in his absence. SRSO shall provide the appropriate BSP-SES department a copy of the report.APP. BTr shall instruct BSP-Accounting to credit the deposit account of BSP-SES with BSP-Accounting Manual of Regulations for Non-Bank Financial Institutions . At the end of the day. D. The responsible BSP-SES department shall verify whether the securities to be withdrawn are in the RoSS account of BSP-SES and the Client Securities Account of the trust institution. BTr shall instruct BSPAccounting to credit the DDA of trust institutions or their designated settlement banks for coupon/interest payment of securities held under the RoSS account of BSP-SES. The BSP-SES department concerned shall also advise the trust institution that it has approved the withdrawal of security deposit by using Annex 6 and checking Boxes “b” and “d” and the appropriate box under “d” depending on whether or not the trust institution has a settlement arrangement. 6. BTr shall effect the transfer/ withdrawal. The advice should be sent by cc mail or by fax to be followed by an official letter duly signed by an authorized trust officer. On the same date. SRSO shall provide the appropriate BSP-SES department a copy of the report. Q-21 05. BTr shall send a report to SRSO containing the transfer/withdrawal. The department shall also determine whether the amount of remaining security deposit will still be adequate in spite of the proposed withdrawal. 10.12. E. 9. If in order. 8. The BSP-SES department concerned shall immediately check from the report whether the securities transferred to the BSP-SES account are the same securities described in the advice (Annex 3) sent earlier by the trust institution. 5. Q-21 05. 4. 9. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-21 . 3. SRSO shall provide the appropriate BSP-SES department a copy of the report. The concerned department shall determine if the book value of the securities to be transferred is equal to or greater than the cash credit.31 for the redemption value of securities that mature while held as security deposit in the RoSS account of BSP-SES. the designated alternate officer) of the Department shall direct the SRSO to instruct BSP-Accounting Department to debit the BSP-SES deposit account and transfer the funds to the DDA of the trust institution (or its designated settlement bank). The trust institution shall check Box “d” of the prescribed form (Annex 3). The BSP-SES department concerned shall also advise the trust institution that it has approved the replacement of matured securities by using Annex 6 and checking Boxes “c” and “e” and the appropriate box under “e” depending on whether or not the trust institution has a settlement arrangement. The Department concerned shall use Annex 5 and check Boxes “c” and “e”. 6. 11. 7.12. BSP-Accounting shall effect the transaction and send a copy of the debit advice to SRSO and a copy of the credit advice to the trust institution (or the designated settlement bank). BTr shall send a report to SRSO containing the transfer.APP. BTr shall send to SRSO a copy of the credit advice. The responsible BSP-SES department shall immediately inform the trust institution concerned of the cash credit and shall inquire whether the trust institution intends to transfer securities to the RoSS account of the BSPSES to replace the matured securities. the instruction shall be coursed through the settlement bank and the securities shall come from the RoSS account of the same bank. If in order. 10. SRSO shall immediately provide the appropriate BSP-SES department a copy of the credit advice. The trust institution shall electronically instruct BTr to transfer securities from its own RoSS accounts to the BSP-SES RoSS account and its corresponding Client Securities Account on the specified date. BTr shall effect the transfer upon verification of RoSS balances. At the end of the day. In the case of a trust institution with a settlement arrangement. the Director (or in his absence.Page 5 . SRSO shall direct BSP-Accounting to debit the BSP-SES deposit account and credit the same amount to the DDA of the trust institution (or its designated settlement bank) using Annex 7. 2. The trust institution shall advise the appropriate BSP-SES department that it will transfer RoSS securities to BSP-SES in place of the cash credited to the deposit account of BSP-SES with BSPAccounting for matured securities. ______________________ Deputy Governor Q Regulations Appendix Q-21 . Very truly yours. Manila Attention: Registry of Scripless Securities (RoSS) Dear ________________________: The Supervision and Examination Sector of the Bangko Sentral ng Pilipinas (BSPSES) hereby makes an application to open a Principal Securities Account in the Registry of Scripless Securities (RoSS) for the purpose of holding the security deposit for the faithful performance of trust duties of institutions engaged in trust business pursuant to Section 65 of R. 337. No.12.A.APP.Page 6 Manual of Regulations for Non-Bank Financial Institutions . Q-21 05. as amended.31 Annex 1 SUPERVISION AND EXAMINATION SECTOR Date _______________________ Treasurer of the Philippines Bureau of Treasury Palacio del Gobernador Intramuros. We understand that the Bureau of the Treasury shall maintain the Principal Securities Account of BSP-SES for free. Please note that the settlement bank of the institution.31 Annex 1-A SUPERVISION AND EXAMINATION SECTOR Date ______________________ Treasurer of the Philippines Bureau of Treasury Palacio del Gobernador Intramuros. Name of Trust Institution 1. _________________________ In connection with the Principal Securities Account of BSP-SES in the Registry of Scripless Securities (RoSS). _____________________ n _____________________ Name of Settlement Bank. Manila Attention: Registry of Scripless Securities (RoSS) Dear Ms. is also indicated. where required _______________________ _______________________ _______________________ We understand that the Bureau of the Treasury will maintain the Client Securities Account for P1. (Signature) Authorized Signatory Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-21 . _____________________ 2.000 per month per account. please open Client Securities Account for the following trust institutions so we can keep track of their security deposit for the faithful performance of trust duties. if it is required.Page 7 . Very truly yours. Q-21 05.APP.12. 31 Annex 2-A To be used by a trust institution with own demand deposit account with BSP-Accounting Letterhead of Trust Institution AUTODEBIT/AUTOCREDIT AUTHORIZATION The (name of trust institution) hereby authorizes the Bureau of the Treasury (BTr) and the Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account with BSP-Accounting for coupons/interest payment of our securities in the BSP-SES RoSS accounts. We also authorize the BTr and the BSP to credit the Account of BSP-SES with BSP-Accounting for the redemption proceeds of our securities in the event such securities mature while in the RoSS account of BSP-SES. and to settle the payment of monthly maintenance fees to BTr of our client securities account under the BSP-SES RoSS account. This authorization will take effect on (indicate date) . Q-21 05.APP. (Signature) (Authorized Signatory) Q Regulations Appendix Q-21 .Page 8 Manual of Regulations for Non-Bank Financial Institutions .12. Q-21 05. and to settle the payment of monthly maintenance fees to BTr of our client securities account under the BSP-SES RoSS account. (Signature) (Authorized Signatory of Settlement Bank) (Signature) (Authorized Signatory of Trust Institution) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-21 .APP.Page 9 .12.31 Annex 2-B To be used by a trust institution with settlement arrangement with a bank Letterhead of Trust Institution AUTODEBIT/AUTOCREDIT AUTHORIZATION The (name of settlement bank) for the account of (name of trust institution) hereby authorizes the Bureau of the Treasury (BTr) and the Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account with BSP-Accounting for coupons/interest payment of securities of the trust institution in the BSP-SES RoSS accounts. This authorization will take effect on (indicate date) . (name of trust institution) also authorizes the BTr and the BSP to credit The the Account of BSP-SES with BSP-Accounting for the redemption proceeds of our securities in the event such securities mature while in the RoSS account of BSP-SES. for maturing securities of the trust institution held in our RoSS Principal Securities Account with BTr. Purchase Price ________ ________ ________ To replace matured securities the redemption value of which P _________ is credited to the deposit account of BSP-SES with BSP-Accounting. Mabini St.Page 10 Manual of Regulations for Non-Bank Financial Institutions .A.12. To replace the following securities which we deposited on Type ISIN Purchase Date Issue Date __________ __________ __________ _____ _____ _____ ______ ______ ______ ______ ______ ______ d. Type ISIN Purchase Date__ Issue Date Due Date __________ __________ __________ _____ _____ _____ ______ ______ ______ ______ ______ ______ ______ ______ ______ Remaining Tenor a/ Face Amount _______ _______ _______ ________ ________ ________ We are transferring the above securities: a. 337.APP.. As our initial deposit b. Very truly yours. As an additional security deposit c. Due Date ______ ______ ______ Purchase Price ________ ________ ________ (date) Remaining Tenor a/ Face Amount _______ _______ _______ ________ ________ ________ . No. Q-21 05.31 Annex 3 Letterhead of Trust Institution Date The Director DTBNBFI Bangko Sentral ng Pilipinas A. (Signature) Name and Designation of Authorized Signatory a / Reckoned from actual date of transfer/withdrawal Q Regulations Appendix Q-21 . Manila Dear Sir: We are transferring on (indicate date of transfer) the following securities to your Principal Securities Account and our Client Securities Account (sub-account) as our security deposit for the faithful performance of trust duties pursuant to Section 65 of R. as amended. 31 Annex 4 Letterhead of Trust Institution Date: _________________ The Director DTBNBFI Bangko Sentral ng Pilipinas A.12. Type ISIN Purchase Date Issue Date __________ __________ __________ _____ _____ _____ ______ ______ ______ ______ ______ ______ Due Date ______ ______ ______ Remaining Tenor a/ Face Amount _______ _______ _______ ________ ________ ________ Purchase Price ________ ________ ________ Very truly yours. Mabini St.. Manila Dear Sir: We wish to withdraw on (indicate date of transfer) the following securities used as security deposit for the faithful performance of trust duties from the Principal Securities Account and from our corresponding Client Securities Account (sub-account). (Signature) Name and Designation of Authorized Signatory a / Reckoned from actual date of transfer/withdrawal Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-21 .APP.Page 11 . Q-21 05. the name of its settlement bank) Type ISIN Purchase Date Issue Date __________ __________ __________ _____ _____ _____ ______ ______ ______ ______ ______ ______ e. where applicable. the name of its designated settlement bank).12. (indicate name of trust institution) dated ______________ Replace outstanding RoSS securities Withdraw RoSS securities Replace cash credit of matured securities with outstanding RoSS securities. b. Instruct the Bureau of Treasury to transfer the following securities out of the BSPSES RoSS accounts to the RoSS Principal Securities Account of (indicate name of trust institution or. (Signature) Authorized Signatory a / Reckoned from actual date of transfer/withdrawal Q Regulations Appendix Q-21 . Due Date ______ ______ ______ Remaining Tenor a/ Face Amount _______ _______ _______ ________ ________ ________ Purchase Price ________ ________ ________ Instruct BSP-Accounting to debit the BSP-SES deposit account in the amount of P________ and to transfer said amount to the demand deposit account of (indicate name of trust institution or. you are hereby authorized to: d.Page 12 Manual of Regulations for Non-Bank Financial Institutions . where applicable. c.31 Annex 5 MEMORANDUM DTBNBFI For : The Director Supervisory Reports and Studies Office From : The Director Subject : Scripless Securities Used As Deposit for Trust Duties Date : In connection with the request of to: a.APP. Q-21 05. 12.Page 13 . e. b. c. (Signature) Authorized Signatory Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-21 . Replace outstanding RoSS securities Withdraw RoSS securities Replace cash credit of matured securities with outstanding RoSS securities. the securities described in your request.31 Annex 6 DTBNBFI Date (Name of Trust Institution) (Address) Subject : Scripless Securities Used As Deposit for Trust Duties Dear Mr. Q-21 05. Accordingly. Instruct the Bureau of Treasury to transfer the following securities out of the BSP-SES RoSS accounts to the RoSS Principal Securities Account your settlement bank’s RoSS Principal Securities Account. we have authorized the Supervisory Reports and Studies Office to: d. Instruct BSP-Accounting to debit the BSP-SES deposit account in the amount of P_______ and to credit said amount to your demand deposit account with BSP-Accounting your settlement bank’s demand deposit account with BSP-Accounting Very truly yours. ____________: We are pleased to inform you that we have approved your request dated _______________ to: a.APP. 12. the name of its settlement bank). (Signature) Authorized Signatory Q Regulations Appendix Q-21 .Page 14 Manual of Regulations for Non-Bank Financial Institutions .31 Annex 7 MEMORANDUM DTBNBFI For : From : Date The Director Accounting Department The Director : Subject: Security Deposit for Trust Duties You are hereby instructed to debit our deposit account in the amount of P ___________ and to credit said amount to the demand deposit account of (indicate name of trust institution or. The trust institution has transferred RoSS securities to the Principal Securities Account of BSP-SES to replace the matured securities. where applicable.APP. Q-21 05. (Department Name) Date The Director Cash Department Bangko Sentral ng Pilipinas P. 4653Q. Q-22 05.12. A.Page 1 .2) PAYMENT FORM . FINES/PENALTIES NATURE a) b) c) d) Late reporting Reserve deficiency SBL Others (Specify) PERIOD COVERED ______________ ______________ ______________ ______________ AMOUNT ______________ ______________ ______________ ______________ TOTAL ____________ ____________ ______________________________ Signature Over Printed Name ______________________________ Position Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-22 . LEGAL RESERVE 2. Cor. Sr.31 PROFORMA PAYMENT FORM (Appendix to Subsec. Ocampo. Mabini.APP. SUPERVISORY FEES ____________ YEAR AMOUNT ______________ ______________ ______________ ______________ ____________ 3. Manila Sir: Attached is ____________________ (Bank) _________________ (Check/DD/CC) ____________ Number in the amount of P_________________ as payment for: AMOUNT 1. 12. They shall maintain a system of verifying the true identity of their clients and.APP. legal form. 1. In case where numbered accounts is allowed (i. Q-23 05. peso and foreign currency non-checking numbered accounts).e. renting of safety deposit boxes. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. accounts under fictitious names. reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted.31 ANTI-MONEY LAUNDERING REGULATIONS (Appendix to Sec. trust entities and all other institutions. and all other similar accounts shall be absolutely prohibited. anonymous accounts. when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both. accepting deposit substitutes. Covered institutions shall establish and record the true identity of its clients based on official documents. 9160 and the following rules and regulations on anti-money laundering. address. whichever is earlier. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts.A. The guidelines on Customer Due Diligence for quasi-banks issued by the BASEL Committee on Banking Supervision which highlights the Know-Your-Customer (KYC) standards to be observed in the design of KYC programs are shown in Annex Q-23-c. anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them. which can be used by banks in the area of customer identification are shown in Annex Q-23-d. in case of corporate clients. covered institutions should ensure that the client is identified in an official or other identifying documents. 4691Q) Banks. In cases of corporate and other legal entities. a. In case of doubt as to whether their purported clients or customers are acting for themselves or for another. including information concerning the customer’s name. principal officers and provisions regulating the power behind the entity. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by covered institutions should be renewed/updated at least every other year. The guidelines on the Account Opening and Customer Identification issued by the BASEL Committee on Banking Supervision represent the starting point. Said client identification may be based on official or other reliable documents and records. performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients. and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R. proof of incorporation. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 .. c. d. quasi-banks. which are not expressly allowed under existing law.Page 1 . directors. the following measures should be taken. Covered institutions shall phase out within a period of one (1) year from 2 April 2001 or upon their maturity. as well as the authority and identification of all persons purporting to act on their behalf. b. The provisions of existing laws to the contrary notwithstanding. When establishing business relations or conducting transactions (particularly opening of deposit accounts. Customer identification. require a system of verifying their legal existence and organizational structure. No. entering into trust and other fiduciary transactions. which have no apparent or visible lawful purpose.APP. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose. (5) Complex. if necessary.1 Banks shall report covered transactions and suspicious transactions. b. be examined. g. Covered institutions should not. to the AMLC using the forms prescribed by the AMLC. f. Q Regulations Appendix Q-23 . 2 and 4 within thirty (30) business days from 31 July 2000 or from opening of the institution. transacting business with criminals. the findings established in writing. If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R.2 and 5. An audit function to test the system. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. or should at least avoid. (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities. as far as possible. which have no apparent or visible lawful purpose. as a minimum: a. should include. Q-23 05. unusual large transactions. 4. as defined in Rules 5. account files and business correspondence. 1. These programs. With respect to closed accounts. Q-23 nos. 292 dated 11. auditors and law enforcement agencies. 2. Report on suspicious transactions.A. and c. including the designation of compliance officers at management level. the transactions involving such funds or attempts to transact the same.31 e. (3) Unusual purchases of foreign exchange without visible lawful purpose. 3. Programs against money laundering should be developed. unusual large transactions. without visible economic or business purpose. No.3 of the AMLA IRRs. shall be preserved and safely stored for at least five (5) years from the dates when they were closed.03 (Annex Q-23-b). The development of internal policies. and (7) Suspicious Transaction Indicators or “Red Flags” as a Guide in the Submission to the AMLC of Reports of Suspicious Transactions Relating To Potential or Actual Financing of Terrorism. Programs against money laundering. and all unusual patterns of transactions.12. Covered institutions shall submit a plan of action on how to comply with the 1 requirements of App.3 of the AMLA IRRs. procedures and controls. Special attention should be given to all complex. Required reporting of certain transactions.2 and 5. a. Such records must be sufficient to permit reconstruction of individual transactions so as to provide. Submission of plans of action.Page 2 Manual of Regulations for Non-Bank Financial Institutions .20. especially if the wire transfers are Amended by AMLC Resolution No. The background and purpose of such transactions should. and be available to help supervisors. An ongoing employee training program. 9160 and/or its IRRs. and adequate screening procedures to ensure high standards when hiring employees. (4) Unusual sales of foreign exchange whose sources are not satisfactorily established. should be reported to the AntiMoney Laundering Council (AMLC) in accordance with Rules 5. the records on customer identification. and all unusual patterns of transactions. (a) Wire transfers between accounts. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. (2) Inward remittances without visible lawful purpose or without underlying trade transactions. evidence for prosecution of criminal behaviour. companies or NGOs that are suspected as being used to pay or receive funds from revolutionary taxes. (g) An individual receiving remittances. agent. However. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. the contents thereof. (h) Client was reported and/or mentioned in the news to be involved in terrorist activities. the concerned officer. No. No. (i) Client is under investigation by law enforcement agencies for possible involvement in terrorist activities. (f) Deposits being made by individuals who have no known connection or relation with the account holder. consultants or associates shall not be deemed to have violated R. (m) The absence of contributions from donors located within the country of origin of the NGO.A. (b) A brief description of the transaction or transactions. R. as amended. (d) Value of the transaction is over and above what the client is capable of earning. (d) Amount(s) involved in every transaction. (k) Transactions of individuals. (j) Transactions of individuals. advisor. (p) Any other transaction that is similar.A. criminal or civil proceedings. (8) All other suspicious transactions/ activities which can be reported without violating any law. employee. agents. companies or non-governmental organizations (NGOs) that are affiliated or related to people suspected of being connected to a terrorist group or a group that advocates violent overthrow of a government. (c) Repetitive deposits or withdrawals that cannot be explained or do not make sense. identical or analogous to any of the foregoing. When reporting covered transactions to the AMLC. b. Exemption from Bank Secrecy Law. (o) Incongruities between apparent sources and amount of funds raised or moved by the NGO. (b) Sources and/or beneficiaries of wire transfers are citizens of countries which are identified or connected with terrorist activities. to any person the fact that a covered transaction report was made. shall lie against any person for having made a covered transaction report in the regular performance of his duties and in Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 . representatives. as amended. 6426. or any other information in relation thereto. shall be criminally liable. 8791 and other similar laws.APP. Q-23 05. no administrative.12. In case of violation thereof. R.Page 3 . directly or indirectly. consultant or associate of the covered institution. No. representative. (e) Such other relevant information which can be of help to the authorities should there be an investigation. (n) A mismatch between the pattern and size of financial transactions on the one hand and the stated purpose and activity of the NGO on the other.31 effected through countries which are identified or connected with terrorist activities. (l) The NGO does not appear to have expenses normally related to relief or humanitarian effort. but has no family members working in the country from which the remittance is made. advisors. (e) Client is conducting a transaction that is out of the ordinary for his known business interest.A. in any manner or by any means. but are prohibited from communicating. 1405. covered institutions and their officers. (c) Date or date the transaction(s) occurred. employees. the contents thereof. representative. the concerned officer. to any person. When reporting covered transactions to the AMLC. 5.31 good faith. Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification (Annex Q-23-a) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations. 9160 or any other Philippine law. c. agents. Neither may such reporting be published or aired in any manner or form by the mass media.APP. Manual of Regulations for Non-Bank Financial Institutions . agent. directly or indirectly. or media shall be held criminally liable. Q-23 05. Certification of compliance with anti-money laundering regulations. No. The certification shall be submitted in accordance with Appendix Q-3 and shall be considered a Category A-2 report. representatives. in any manner or by any means. advisors. covered institutions and their officers. electronic mail. In Q Regulations Appendix Q-23 . advisor. employee. the fact that a covered transaction report was made. or any other information in relation thereto.12. whether or not such reporting results in any criminal prosecution under R. or other similar devices. consultant or associate of the covered institution.A. entity. the media. employees. consultants or associates are prohibited from communicating. Prohibition from disclosure of the covered transaction report.Page 4 case of violation thereof. and continued monitoring of customer’s activities. documentation of all new clients. _____ this ____ day of ____________. 9160 (Anti-Money Laundering Act of 2001) as well as with BSP Circular Nos.(s) as follows: Name Community Tax Cert. Page No. That we conduct regular anti-money laundering training sessions for all quasi-bank officers and selected staff members holding sensitive positions. That the quasi-bank is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years. 279 dated 2 April 2001.12. 4. _________. No.APP. That the quasi-bank is complying with the required customer identification. Book No. 251. we hereby certify: 1. 3. ________________________ (Name of President or officer of equivalent rank) ___________________ (Name of Compliance Officer) SUBSCRIBED AND SWORN to before me. _________. That we have monitored (Name of quasi-bank)’s compliance with R.31 Annex Q-23-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No. Series of 20___ Manual of Regulations for Non-Bank Financial Institutions Date/Place Issued Notary Public Q Regulations Appendix Q-23 . 253. 2.Page 5 . That the quasi-bank does not maintain anonymous or fictitious accounts. No. _________.A. 259 and 302. No Doc. Q-23 05. affiant/s exhibiting to me their Community Tax Certificate No. and 5. Q-23 05. however. as the case may be. Banks shall file covered transaction reports (CTRs) on transactions involving all kinds of monetary instruments or property. The PSE. are however. b. deposits of premium payments in bulk or settlements of trade. semi-annually or annually). Submission of STRs. · Transactions involving transfer of funds from one deposit account to another deposit account of the same person within the same bank. SCCP and transfer agents are exempt from filing CTRs. 3. Where the covered institution engages in bulk transactions with a bank. exceeds P500. i. and · Loan interest/principal payment debited against borrower’s deposit account maintained with the lending bank. resolved to: (1) Defer reporting by covered institutions to AMLC of the following “non-cash. · Transactions between banks operating in the Philippines. said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500. whether in domestic or foreign currency.12. in cash or non-cash. 4. i. through the Association of Bank Compliance Officers (ABCOMP).000 and are included in the bulk transactions. All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property. retroactive to 23 March 2003. The submission of CTRs is deferred until the AMLC directs otherwise. quarterly. Under this rule. The Anti-Money Laundering Council (AMLC). no/low risk covered transactions: · Transactions between banks and the BSP. as amended. Due to the nature of the transactions in the stock exchange. even if the amounts of the amortizations are less than the threshold amount. and (2) Re-submit in required electronic form. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS* 1. in the exercise of its authority under Sections 7(1) and 9 of Republic Act No. when the total amount of the premiums for the entire year. 2... no/low risk” covered transactions. 9160. otherwise known as the “Anti-Money Laundering Act of 2001”. regardless of the mode of payment (monthly. All covered institutions should: (1) Submit corresponding electronic copy versions. to determine and report to AMLC the specific transactions falling within the purview of the aforesaid BSP-identified categories on “non-cash. such amount shall be reported as a covered transaction. those CTRs that have been submitted previously in hard copy or in diskette not in the required format. required to file STRs when the transactions that pass through them are deemed to be suspicious. and its Revised Implementing Rules and Regulations. Q Regulations Appendix Q-23 . · Roll-overs of placements of time deposits. other than banks. in the required format. The CTR shall be filed upon payment of the first premium amount.e. of those STRs previously submitted in hard copy or the hard copy version of those submitted only in electronic form. Covered institutions.e.31 Annex Q-23-b AMLC Resolution No. regardless of the mode of payment. whichever comes first. They. only the brokers-dealers shall be required to file CTRs and STRs. 6. PCD. retroactive to 05 January 2004. 5.000. (2) Request the BSP-supervised institutions. shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. · Internal operating expenses of the banks. and the bulk transactions do not distinguish clients and their respective transaction amounts.Page 6 Manual of Regulations for Non-Bank Financial Institutions . are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require.APP. With respect to insurance companies. *a. · Transactions between banks and government agencies. the insurance company shall file the CTR only once every year until the policy matures or rescinded. Quasi-banks should establish a systematic procedure for verifying the identity of new customers and should never enter a business relationship until the identity of a new customer is satisfactorily established. factors such as customers’ background.1 The best documents for verifying the identity of customers are those most difficult to obtain illicitly and to counterfeit. Customer identification Customer identification is an essential element of KYC standards. 2. Specifically. a risk assessment exercise can be undertaken and priority given to obtaining necessary information. where it is deficient. A customer should also include the beneficiary of a trust. The customer identification process applies naturally at the outset of the relationship. such as individuals holding important/ prominent positions.Page 7 . Q-23 05. but there is also a need to apply KYC standards to existing customer accounts. whereas quite extensive due diligence may be deemed essential for an individual with a high net worth whose source of funds is unclear. such as passport. The quasi-bank should always ask itself why the customer has chosen to open an account in a foreign jurisdiction. Quasi-banks should develop graduated customer acceptance policies and procedures that require more extensive due diligence for high risk customers. a customer should include an account-holder and the beneficial owner of an account. A customer is defined as any person or entity that keeps an account with a quasi-bank and any person or entity on whose behalf an account is maintained. country of origin. an 1 investment fund. However. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 . in respect of the higher risk cases. as well as the beneficiaries of transactions conducted by professional financial intermediaries. the policies may require the most basic account-opening requirements for a working individual with a small account balance. Where such standards have been introduced only recently and do not as yet apply fully to existing customers. or when there is a material change in the way that the account is operated. or the grantor of a trust. including a description of the types of customer that are unacceptable to quasi-bank management.31 Annex Q-23-c CUSTOMER DUE DILIGENCE FOR BANKS AND QUASI-BANKS 1. In preparing such policies. Essential Criterion 2. An appropriate time to review the information available on existing customers is when a transaction of significance takes place. a pension fund or a company whose assets are managed by an asset manager.APP. For example. business activities or other risk indicators should be considered. Quasi-banks should “document and enforce policies for identification of customers and those acting on their behalf”. Customer acceptance policy Quasi-banks should develop clear customer acceptance policies and procedures. Special attention should be exercised in the case of non-resident customers and in no case should a quasi-bank short-circuit identity procedures just because the new customer is unable to present himself for interview. Decisions to enter into business relationships with high risk customers. public or high profile position. if a quasi-bank is aware that it Core Principles Methodology. should be taken exclusively at senior management level.12. driver’s license or alien certificate of registration. public or private (see below). In no circumstances should private quasi-banking operations function autonomously. corporate. quasi-banks must still ensure that at least equivalent scrutiny and monitoring of these customers and their business can be conducted. In addition. the supervisor needs to set an appropriate target date for completion of a KYC review and regularization of all existing accounts. Quasi-banks should never agree to open an account or conduct ongoing business with a customer who insists on anonymity or “bearer” status or who gives a fictitious name.banks that offer private banking services are particularly exposed to reputational risk. If particular safeguards are put in place internally to protect confidentiality of private quasi-banking customers and their business. 2.31 lacks sufficient information about an existing high-risk customer. bearing in mind that the previous account manager may have asked for the account to be removed because of a concern about dubious activities.12. an intermediary or a personalized investment company. Examples of the type of information that would be appropriate are set out in Annex Q-23-c-1. a trust. In any event. e.1 General identification requirements Quasi-banks need to obtain all information necessary to establish to their 1 2 full satisfaction the identity of each new customer and the purpose and intended nature of the business relationship. or as a “quasi-bank within a quasi-bank”1 . The extent and nature of the information depends on the type of applicant (personal. Private quasi-banking by nature involves a large measure of confidentiality. even if the test is carried out by selected staff. such as Some quasi-banks insulate their private quasi-banking functions or create Chinese walls as a means of providing additional protection for customer confidentiality. they must be open to review by compliance officers and auditors. Whereas a numbered account can offer additional protection for the identity of the account-holder. and no part of the quasi-bank should ever escape the required procedures. Q-23 05. This means that all new clients and new accounts should be approved by at least one person other than the private quasi-banking relationship manager. Quasi. the name of the beneficial owner is known to the quasi-bank but is substituted by an account number or code name in subsequent documentation. a quasibank should undertake regular reviews of its customer base to establish that it has upto-date information and a proper understanding of its account holders’ identity and of their business.g.Page 8 Manual of Regulations for Non-Bank Financial Institutions .) and the expected size of the account. In a numbered account. the identity must be known to a sufficient number of staff to operate proper due diligence. Such accounts should in no circumstances be used to hide the customer identity from a quasi-bank’s compliance function or from the supervisors. Quasi-banks need to be vigilant in preventing corporate business entities from being used by natural persons as a method of operating anonymous accounts. etc. a commercial business. Nor should confidential numbered 2 accounts function as anonymous accounts but they should be subject to exactly the same KYC procedures as all other customer accounts. Private quasi-banking accounts can be opened in the name of an individual. In each case reputational risk may arise if the quasibank does not diligently follow established KYC procedures. Q Regulations Appendix Q-23 . Quasi-banks should apply their full KYC procedures to applicants that plan to transfer an opening balance from another financial institution. Personal asset holding vehicles. National supervisors are encouraged to provide guidance to assist quasi-banks in their designing their own identification procedures.APP. it should take steps to ensure that all relevant information is obtained as quickly as possible. In doing so.g. or whether it would be more appropriate to look through the intermediary to the ultimate beneficial owners. Special care needs to be exercised in initiating business transactions with companies that have nominee shareholders or shares in bearer form. a lawyer or an accountant). In some countries. and the Working Group recognizes the need to be consistent with the FATF. as well as details of the nature of the trust or other arrangements in place. client accounts managed by law firms) or accounts opened on behalf of pooled entities. Satisfactory evidence of the identity of beneficial owners of all companies needs to be obtained. may make proper identification of customers or beneficial owners difficult. The Working Group has therefore not taken a definitive position on this issue.Page 9 . Where not.APP.2. nominee and fiduciary accounts or client accounts opened by professional intermediaries Trust.g. a necessary precondition is receipt of satisfactory evidence of the identity of any intermediaries and of the persons upon whose behalf they are acting. nominee or professional intermediary (e. nominee and fiduciary accounts can be used to avoid customer identification procedures. If so. Quasi-banks may hold “pooled’ accounts (e. 2. quasi- banks have to decide. Particular comments are invited on the issues mentioned in this section. whether the customer is the intermediary.2 Specific identification issues There are a number of more detailed issues relating to customer identification which need to be addressed. such as mutual funds and money managers. there might exist professional codes of conduct preventing the dissemination of information concerning their clients. given the circumstances. the quasibanks should perform due diligence on the intermediary and establish to its complete satisfaction that the intermediary has a sound due diligence process for each of its clients. Quasi-banks should establish whether the customer is acting on behalf of another person as trustee. 2. it has therefore become customary for quasi-banks to rely on the procedures undertaken by other quasibanks or introducers when business is being referred. In the case of professional intermediaries such as lawyers.31 international business companies (IBCs). The FATF is currently engaged in a review of KYC procedures governing accounts opened by lawyers on behalf of clients. The above procedures may prove difficult for quasi-banks in some countries to follow. it is essential that the true relationship is understood. the identity of the customer that is subject to due diligence should be clearly established. Several of these are currently under consideration by the FATF as part of a general review of its forty recommendations. In each case.1 Trust.2 Introduced business The performance of identification procedures can be time consuming and there is a natural desire to limit any inconvenience for new customers.12. In such cases. The beneficial owners should be verified where possible. A quasi-bank should take all steps necessary to satisfy itself that it knows the true identity of the ultimate owner of all such entities. While it may be legitimate under certain circumstances to provide an extra layer of security to protect the confidentiality of legitimate private quasi-banking customers.2. 2. Q-23 05. quasi-banks risk placing excessive reliance on the due diligence procedures that they expect the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 . The on-going monitoring process includes the following: • Quasi-banks should develop “clear standards on what records must be kept on customer identification and individual transactions and the retention period”.3 Reputational risk Business relationship with individuals holding important/prominent positions. Relying on due diligence conducted by an introducer. Essential Criterion 2. does not in any way remove the ultimate responsibility of the recipient quasi-bank to know its customers and their business. They should also retain all financial transaction records for at least five years after the transaction has taken place. analyse and effectively monitor higher risk customer accounts. however reputable. Accepting and managing funds from such persons could put at risk the quasibank’s own reputation and can undermine public confidence in the ethical standards of an entire financial centre. Core Principles Methodology. and with persons or companies clearly related to them may expose a quasi-bank to significant reputational and/or legal risks.12. Q-23 05. In addition.Page 10 Manual of Regulations for Non-Bank Financial Institutions . public or private. whether a quasi-bank should establish a contractual relationship with its introducers and whether it is appropriate to rely on a third party introducer at all. The FATF is currently engaged in a review of the appropriateness of eligible introducers. whether they should be confined to reputable quasi-banks only or should extend to other regulated institutions.e. Q Regulations Appendix Q-23 . • Quasi-banks should ensure that they have adequate management information systems to provide managers and compliance officers with timely information needed to identify. even if the illegal origin of the assets is often difficult to prove. and aggregations of a customer’s total relationship with the quasi-bank. The Working Group is still developing its thinking on this topic. i. quasi-banks should obtain and keep up to date customer identification papers and retain them for at least five years after an account is closed. Without such knowledge. transactions made through a customer account that are unusual.2.1 As the starting point and natural follow-up of the identification process. 3. they are likely to fail in their duty to report suspicious transactions to the appropriate authorities in cases where they are required to do so. if they know or should have known that the funds stemmed from corruption or other serious crimes. On-going monitoring of high risk accounts On-going monitoring of accounts and transactions is an essential aspect of effective KYC procedures.APP. quasibanks should not rely on introducers that are subject to weaker standards than those governing the quasi-banks’ own KYC procedures or that are unwilling to share copies of due diligence documentation. the quasibank and/or its officers and employees themselves can be exposed to charges of money laundering. In particular. 2. Quasi-banks can only effectively control and reduce their risk if they have an understanding of normal and reasonable account activity of their customers. the quasibank may be subject to costly information requests and seizure orders from law enforcement or judicial authorities (including international mutual assistance procedures in criminal matters) and could be liable to actions for damages by the state concerned or the victims of a regime. The types of reports that may be needed include reports of missing account opening documentation. since such cases usually receive extensive media attention and strong political reaction.31 introducers to have performed. 1 Under certain circumstances. front-line staff. communicated to all personnel. public or private (or rather their family members and friends) would not necessarily present themselves in that capacity.Page 11 . pattern of transactions. They may include transactions that do not make economic or commercial sense. Training requirements should have a different focus for new staff. A list of suspicious activities drawn up by supervisors can be very helpful to quasi-banks.1 4. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 . New staff should be educated in the importance of KYC policies and the basic requirements at the quasi-bank. The board of directors of the quasi-bank should be fully committed to an effective KYC programme by establishing appropriate procedures and ensuring their effectiveness. Very high account turnover. taking into account the country of origin and other risk factors. in accordance with local supervisory practice. Quasi-banks should have clear written procedures. • Quasi-banks should have systems in place to detect unusual or suspicious patterns of activity. plausibility of the customer’s explanations etc. and set threshold indicators for them accordingly. Front-line staff members who deal directly with the public should It is unrealistic to expect the quasi-bank to know or investigate every distant family. may indicate that funds are being “washed” through the account. It should however be noted that individuals holding important/prominent positions. and high profile individuals or with persons and companies 1 that are clearly related to or associated with them. Particular attention should be paid to transactions that exceed these limits. procedures and controls and remain especially vigilant regarding business relationships with individuals holding important/prominent positions. Every quasibank should draw its own distinction between large/important customers and others. systems and controls.APP. The need to pursue suspicions will depend on the size of the assets or turnover. • Quasi-bank should develop a clear policy and internal guidelines. Certain types of transactions should alert quasi-banks to the possibility that the customer is conducting undesirable activities. reputation of the country. Quasi-banks should appoint a senior officer with explicit responsibility for ensuring that the quasi-bank’s policies and procedures are. or that involve large amounts of cash deposits that are not consistent with the normal and expected transactions of the customer. inconsistent with the size of the balance. Q-23 05. at a minimum. training and other related policies. Significant transactions by high-risk customers should be approved by a senior manager. economic background. This can be done by establishing limits for a particular class or category of accounts.31 • Senior management of a quasibank in charge of private quasi-banking business should know the personal circumstances of the quasi-bank’s large/ important customers and be alert to sources of third party information. but rather as ordinary (albeit wealthy) business people. segregation of duties. masking the fact they owe their high position in a legitimate business corporation only to their privileged relation with the holder of the public office. The timing and content of training for various sectors of staff will need to be adapted by the quasi-bank for its own needs. compliance staff or staff dealing with new customers. All quasi-banks must have an ongoing employee-training programme so that quasi-bank staff is adequately trained in KYC procedures. political or business connection of a foreign customer. for staff to report suspicious transactions to a specified senior manager. Risk Management Effective KYC procedures embrace routines for proper management oversight. That manager must then assess whether the quasi-bank’s statutory obligations under recognized suspicious activity reporting regimes require the transaction to be reported to the appropriate law enforcement and supervisory authorities.12. public or private. internal auditors should be proactive in following-up their findings and criticisms. Its responsibilities should include ongoing monitoring of staff performance through sample testing of compliance and review of exception reports to alert senior management or the Board of Directors if it believes management is failing to address KYC procedures in a responsible manner.31 be trained to verify the customer identity for new customers. Manual of Regulations for Non-Bank Financial Institutions . As a general rule. Q-23 05. the compliance function provides an independent evaluation of the quasi-bank’s own policies and procedures. Quasi-banks’ internal audit and compliance functions have important responsibilities in evaluating and ensuring adherence to KYC policies and procedures. It is crucial that all relevant staff fully understand the need for and implement KYC policies consistently. discharging its responsibility to the Audit Committee of the Board of Directors or a similar oversight body through periodic evaluations of the effectiveness of compliance with KYC policies and procedures. Internal audit plays an important role in independently evaluating the risk management and controls. In addition. Regular refresher training should be provided to ensure that staff is reminded of their responsibilities and is kept informed of new developments.Page 12 requirements.APP.12. including legal and regulatory Q Regulations Appendix Q-23 . to exercise due diligence in handling accounts of existing customers on an ongoing basis and to detect patterns of suspicious activity. A culture within quasi-banks that promotes such understanding is the key to successful implementation. Management should ensure that audit functions are staffed adequately with individuals who are well-versed in such policies and procedures. such as an incorporation document. In addition.Page 13 . name of employer or nature of self-employment/business. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 . quasi-banks should obtain evidence of their legal status. Additional information would relate to nationality or country of origin. In countries where new customers do not possess the prime identity documents.g. Where there is face to face contact. some flexibility may be required. public or high profile position. particular care should be taken in accepting documents that are easily forged or which can be easily obtained in false identities. identity cards. Personal customers For personal customers. and source of funds.12. Q-23 05. a financial statement of the business or a description of the customer’s principal line of business should also be obtained. Corporate and other business customers For corporate and other business customers. partnership agreement. quasi-banks need to obtain the following information: Name and/or names used. further checks should be made. specimen signature. National supervisors are encouraged to provide guidance to assist quasibanks in designing their own identification procedures. quasi-banks need to verify that the corporation or business entity exists and engages in its stated business. permanent residential address. In all cases. e. Quasi-banks should verify the information against original documents of identity issued by an official authority (examples including identity cards and passports). association documents or a business licence. Such documents should be those that are most difficult to obtain illicitly. However. if significant changes to the company structure or ownership occur subsequently.. passports or driving licenses. The original documents or certified copies of certificates should be produced for verification. the appearance should be verified against an official document bearing a photograph. For large corporate accounts. etc.APP.31 Annex Q-23-c-1 GENERAL IDENTIFICATION REQUIREMENTS This annex presents a suggested list of identification requirements for personal customers and corporates. date and place of birth. Any subsequent changes to the above information should also be recorded and verified. 7. will clearly require greater scrutiny than lower risk transactions and accounts. or where there is uncertainty concerning the validity of the document(s) presented. This document does not address the other elements of the Customer Due Diligence for banks paper. such as those with politically exposed persons or organizations. Higher risk transactions and relationships. What follows is account opening and customer identification guidelines and a general guide to good practice based on the principles of the Basel Committee’s Customer due diligence for banks paper. The Basel Committee on Banking Supervision in its paper on Customer Due Diligence for Banks published in October 2001 referred to the intention of the Working Group on Cross-border Banking1 to develop guidance on customer identification. institution) and the different levels of risk resulting from a customer’s relationship with a bank. It is also necessary in order to comply with anti-money laundering legal requirements and a prerequisite for the identification of bank accounts related to terrorism.APP. These guidelines represent a starting point for supervisors and banks in the area of customer identification. 3.31 Annex Q-23-d GENERAL GUIDE TO ACCOUNT OPENING AND CUSTOMER IDENTIFICATION 1. supervisors should recognize that any customer identification programme should reflect the different types of customers (individual vs. Guidelines and best practices created by national supervisors should also reflect the various types of transactions that are most prevalent in the national banking system. Some identification documents are more vulnerable to fraud than others. 6. the bank should verify the information provided by the customer through additional inquiries or other sources of information. non-face-to-face opening of accounts may be more prevalent in one country than another. Customer identification documents should be retained for at least five years after an account is closed. such as the ongoing monitoring of accounts. All financial transaction records should be retained for at least five years after the transaction has taken place. Customer identification is an essential element of an effective customer due diligence programme which banks need to put in place to guard against reputational. legal and concentration risks. This document. which has been developed by the Working Group on Cross-border Banking. these elements should be considered in the development of effective customer due diligence. For this reason the customer identification procedures may differ between countries. These guidelines may be adapted for use by national supervisors who are seeking to develop or enhance customer identification programmes. However. does not cover every eventuality. Q-23 05. operational.Page 14 Manual of Regulations for Non-Bank Financial Institutions . but instead focuses on some of the mechanisms that banks can use in developing an effective customer identification programme. For those that are most susceptible to fraud. However. 2. 5. antimoney laundering and combating the financing of terrorism procedures. Q Regulations Appendix Q-23 . 1 4. The Working Group on Cross-border Banking is a joint group consisting of members of the Basel Committee and of the Offshore Group of Banking Supervisors. For example.12. For natural persons the following information should be obtained. and e-mail address. 15. passport. financial institutions should be able to make an initial assessment of a customer’s risk profile. or through independent verification by home visits. • confirming the validity of the official documentation provided through certification by an authorised person (e. where applicable: • legal name and any other names used (such as maiden name).12. identification card. • date and place of birth.e. identity card. a disconnected phone.g. residence permit. The bank should verify this information by at least one of the following methods: • confirming the date of birth from an official document (e. From the information provided in paragraph 10. by letter or by e-mail to confirm the information supplied after an account has been opened (e. returned mail. For one-off or occasional transactions where the amount of the transaction or series of linked transactions does not exceed an established minimum Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 . the first relating to corporate vehicles and the second to other types of institutions.g. notary public). birth certificate. • an official person identification number or other unique identifier contained in an unexpired official document (e.Page 15 . Financial institutions should apply equally effective customer identification procedures for non-face-to-face customers as for those available for interview. a letter from a public authority). bank statement. driving license) that bears a photograph of the customer. • source of wealth. public position held and/or name of employer. 9. These guidelines are divided into two sections covering different aspects of customer identification.g. a Post Office box number is not sufficient). fax number. 14. public position held (where appropriate). • contacting the customer by telephone. • telephone number. or incorrect e-mail address should warrant further investigation). by an existing customer of the same institution). Q-23 05. • correct permanent address (the full address should be obtained. passport. 12.g. • occupation. • type of account and nature of the banking relationship. • signature. Particular attention needs to be focused on those customers identified thereby as having a higher risk profile and additional inquiries made or information obtained in respect of those customers to include the following: • evidence of an individual’s permanent address sought through a credit reference agency search. • verification of employment. Section B describes what types of information should be collected and verified for institutions and is in two parts.social security records). All the terms used in these guidelines have the same meaning as in the Customer due diligence for banks paper. In particular jurisdictions there may be other documents of an equivalent nature which may be produced as satisfactory evidence of customer’s identity. • personal reference (i. • confirming the permanent address (e. • nationality. utility bill.g. A. • prior bank reference and contact with the bank regarding the customer. social security records.APP. The examples quoted above are not the only possibilities. 11. embassy official. Section A describes what types of information should be collected and verified for natural persons seeking to open accounts or perform transactions. 13. tax assessment.31 8. Natural Persons 10. Corporations/Partnerships 22. tax identification number). For corporations/partnerships. The bank should also take reasonable steps to verify the identity and reputation of any agent that opens an account on behalf of a corporate customer. • visiting the corporate entity. 18.APP. • some form of official identification number. Q-23 05. B. the foregoing guidance in respect of such persons should have equal application. Q Regulations Appendix Q-23 . signatories.12. especially for people who are financially or socially disadvantaged. corporations and partnerships). where practical. • nature and purpose of business and its legitimacy. Where in the following the identification and verification of natural persons is involved.e. it might be sufficient to require and record only name and address. • conducting an enquiry by a business information service. For corporate entities (i. For corporations. The term institution includes any entity that is not a natural person. including those who have ultimate control. • utilising an independent information verification process. • principal place of institution’s business operations. or an undertaking from a reputable and known firm of lawyers or accountants confirming the documents submitted. • undertaking a company search and/or other commercial enquiries to see that the institution has not been. the objective is to undertake reasonable measures to look behind that company or entity and to verify the identity of the Manual of Regulations for Non-Bank Financial Institutions . • the original or certified copy of the Certificate of Incorporation and Memorandum and Articles of Association. dissolved. Where the owner is another corporate entity or trust. wound up or terminated. if available). The bank should verify this information by at least one of the following methods: • for established corporate entities – reviewing a copy of the latest report and accounts (audited. if that agent is not an officer of the corporate customer.31 monetary value. • obtaining prior bank references. • mailing address of institution. • contacting the corporate entity by telephone. I. the following information should be obtained: • name of institution. 21.g.Page 16 20. In considering the customer identification guidance for the different types of institutions. particular attention should be paid to shareholders. The underlying principles of customer identification for natural persons have equal application to customer identification for all institutions. It is important that the customer acceptance policy is not so restrictive that it results in a denial of access by the general public to banking services. or is not in the process of being. or others who inject a significant proportion of the capital or financial support or otherwise exercise control. • the resolution of the Board of Directors to open an account and identification of those who have authority to operate the account. if available (e. the principal guidance is to look behind the institution to identify those who have control over the business and the company’s/partnership’s assets. • contact telephone and fax numbers. particular attention should be given to the different levels of risk involved. such as by accessing public and private databases. 16. struck off. mail or e-mail. Corporate Entities 19. Institutions 17. administrator. The bank should verify this information by at least one of the following: • obtaining an independent undertaking from a reputable and known firm of lawyers or accountants confirming the documents submitted. Cooperatives and Provident Societies 27. Where these entities are an applicant for an account. and all signatories. • some form of official identification number. programme manager. the bank should take reasonable steps to identify and verify at least two signatories along with the institution itself.g. • contact telephone and fax numbers. consideration should be given to whether there is effective control of a listed company by an individual. However. The principals who should be identified should be considered to be those persons exercising control or significant influence over the organisation’s assets. the following information should be obtained in addition to that required to verify the identity of the principals: • name of account. II. clubs.APP. • obtaining prior bank references. any board members. • description of the purpose/activities of the account holder (e. each partner should be identified and it is also important to identify immediate family members that have ownership control. accounts or investments without requiring further authorisation. the President. This will often include members of a governing body or committee. Retirement Benefit Programmes 26. If this is the case then those controllers should also be considered to be principals and identified accordingly. and who would be in a position to override internal procedures and control mechanisms. Independent confirmation should also be obtained of the purpose of the institution. tax identification number). the principals to be identified should be considered to be those persons exercising control or significant influence over the organisation’s assets. Mutuals/Friendly Societies. small group of individuals or another corporate entity or trust. if available (e. the treasurer. • accessing public and private databases or official sources.Page 17 . 23.31 principals. Q-23 05. and societies. Where a company is listed on a recognised stock exchange or is a subsidiary of such a company then the company itself may be considered to be the principal to be identified. • copy of documentation confirming the legal existence of the account holder (e. 25. For the account categories referred to paragraphs 26 to 34. In all cases independent verification should be obtained that the persons involved are true representatives of the institution. Where an occupational pension programme.g. For partnerships. in a formal constitution).g. register of charities). Other Types of Institution 24. This will often include board members plus executives and account signatories. • mailing address. Charities. 29. employee benefit trust or share option plan is an applicant for an account the trustee and any other person who has control over the relationship (e. and account signatories) should be considered as principals and the bank should take steps to verify their identities. In the case of accounts to be opened for charities.g. What constitutes control for this purpose will depend on the nature of a company. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 .12. Clubs and Associations 28. and may rest in those who are mandated to manage funds. When a professional intermediary opens a client account on behalf of a single client that client must be identified. when the intermediary is subject to the same due diligence standards in respect of its client base as the bank). 33. In the case of a foundation. • its trustee where it is a unit trust. Intermediaries should be treated as individual customers of the bank and the standing of the intermediary should be separately verified by obtaining the appropriate information drawn from the itemised lists included in paragraphs 1920 above. and signatories. Manual of Regulations for Non-Bank Financial Institutions .12. the managers/directors and the beneficiaries. Professional intermediaries will often open “pooled” accounts on behalf of a number of entities. Where funds held by the intermediary are not co-mingled but where there are “sub-accounts” which can be attributable to each beneficial owner. • account signatories. Where such circumstances apply and an account is opened for an open or closed ended investment company. In addition all reasonable steps should be taken to verify the identity of the beneficial owners of the funds and of those who have control of the funds. When opening an account for a trust. Q Regulations Appendix Q-23 . the following should be considered as principals and the bank should take steps to identify: • the fund itself. the same steps should be taken as in paragraph 32 where it is appropriate to do so. beneficiary(ies). • any other person who has control over the relationship e. all beneficial owners of the account held by the intermediary should be identified. fund administrator or manager. the bank should look through to the beneficial owners. Q-23 05. Professional Intermediaries 31. unit trust or limited partnership which is also subject to the same diligence standards in respect of its client base as the bank.APP.31 Trusts and Foundations 30. there may be circumstances which should be set out in supervisory guidance where the bank may not need to look beyond the intermediary (e. Where other investment vehicles are involved. 34.Page 18 32. the settler(s) of the trust (including any persons settling assets into the trust) any protector(s). • its directors or any controlling board where it is a company. the bank should take reasonable steps to verify the trustee(s).g. • its managing (general) partner where it is a limited partnership. Where the funds are co-mingled.g. however. steps should be taken to verify the founder. Beneficiaries should be identified when they are defined. A “non-reporting day” may be declared by the AMLC Secretariat when the File Transfer and Reporting Facility (FTRF). the Council. covered institutions (CIs) shall report to the AMLC all covered transactions and suspicious transactions within five (5) working days from occurrence thereof. It shall be the basis of manually recomputing whatever penalties that would be automatically computed by TMAS. except for officially declared local holidays in the locality where the AMLC Secretariat Office is located. for the computation of the penalty for delayed reporting by the CIs. Officially-declared non-working days in localities or regions affected by natural calamities such as flood.12. the CIs affected may file a deviation request with the AMLC Secretariat. · The Executive Director of the AMLC Secretariat (or the Officer-in-charge) is authorized to declare such day as a “nonreporting” day upon notification and justification by the Deputy Director of IMAS AMLC Secretariat. and hence. resolves as it hereby resolved.APP. 4. It shall be the basis of manually recomputing whatever penalties that would be automatically computed by TMAS. · CI’s request for deviation shall be subject to approval of the Executive Director of the AMLC Secretariat (or the Officer-in-charge) upon recommendation of the Deputy Director of IMAS AMLC Secretariat. is unavailable to all CIs for at least five (5) consecutive hours during the day · AMLC-declared “non-reporting day” is excluded from the counting of the prescribed reporting period. 3. However. Q-23 05. Local holidays.31 Annex Q-23-e AMLC Resolution No. resolves as it hereby resolved.Page 19 . to consider and include the foregoing policies and guidelines in the ongoing development and implementation of AMLC’s Transaction Monitoring and Analysis System (TMAS) and specifically. typhoon. 02 Series of 2005 Pursuant to Section 9-c of the AntiMoney Laundering Act. The following non-working days are excluded from the counting of the prescribed reporting period: · weekend (Saturday and Sunday) · official regular national holiday · officially declared national holiday (special non-working day nationwide) · officially declared local holiday in the locality where AMLC Secretariat Office is located 2. · CI’s request for deviation shall be subject to approval of the Executive Director of the AMLC Secretariat (or the Officer-in-charge) upon recommendation of the Deputy Director of IMAS AMLC Secretariat. the Council. earthquake. as amended. subject to the circumstances described in Resolution No. etc. are treated as working days even for CIs located in such locality declared as on holiday. included in the counting of the prescribed reporting period. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-23 . to approve the following policies and guidelines in reckoning CIs’ compliance with the prescribed reporting period: 1. WHEREFORE. 292 dated 24 October 2003 which remains in full force and effect. WHEREFORE. used by the CIs in transmitting their electronic reports to AMLC. may be excluded from the counting of the prescribed reporting period for CIs located in affected localities or regions subject to submission of deviation request by the CI. Conversely.12. Paying interest on participations without advising participating institution that the source of interest was not from the borrower. (10) Failure to diversify the loan portfolio/asset mix of the institution. 4301Q. b. Operating with total adjusted capital and reserves that are inadequate in relation to the kind and quality of the assets of the quasi-bank/trust entity. (3) Excessive net loan losses.Page 1 . (7) Indiscriminate participation in weak and undocumented loans originated by other institutions. Operating with a serious lack of liquidity. j. especially if a significant portion of these loans are adversely classified. Operating with management whose policies and practices are detrimental to the quasi-bank/trust entity and jeopardize the safety of its deposit substitutes/trust accounts. Excessive amounts of loan participations sold. f. (9) An excessive volume of past due or non-performing loans. not all practices which might under the circumstances be termed unsafe or unsound are mentioned here. k. (6) Excessive concentrations of credit. m. a. Permitting officers to engage in lending practices beyond the scope of their positions. 4149Q and 4408Q and Subsec. Engaging in speculative and hazardous investment policies. Excessive reliance on letters of credit either issued by the quasi-bank/trust entity or accepted as collateral to loans advanced. non-public information known to the quasi-bank/trust entity. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-24 . especially if a substantial portion of this credit is adversely classified.31 ACTIVITIES WHICH MAY BE CONSIDERED UNSAFE AND UNSOUND PRACTICES (Appendix to Secs. e. i.6) The following activities are considered only as guidelines and are not irrebutably presumed to be unsafe or unsound. Selling participations without disclosing to the purchasers of those participations material. d. The Monetary Board may consider other acts/ omissions as unsafe or unsound practices. Failure to limit. especially in view of the asset and deposit substitute/liability structure of the quasi-bank/trust entity. Operating in a way that produces a deficit in net operating income. Engaging in hazardous lending and lax collection policies and practices. earnings capacity and asset quality of the quasibank/trust entity. c. Q-24 05. as evidenced by: (1) An excessive volume of loans subject to adverse classification. l. (5) An excessive volume of weak and self-serving loans to persons connected with the quasi-bank/trust entity. (2) An excessive volume of loans without adequate documentation. g. including credit information. Excessive reliance on large. Paying excessive cash dividends in relation to the capital position. and (11) Failure to make provision for an adequate reserve for possible loan losses. (8) Failing to adopt written loan policies. highinterest or volatile borrowings. n. (4) An excessive volume of loans in relation to the total assets and deposit substitutes/trust liabilities of the quasi-bank/ trust entity. control and document contingent liabilities.APP. h. Manual of Regulations for Non-Bank Financial Institutions . v. Operating the quasi-bank/trust entity with inadequate internal controls. Q Regulations Appendix Q-24 . r. Failure to keep accurate and updated books and records. q. Improper or non-documentation of repurchase agreements covering government securities and commercial papers and other negotiable and nonnegotiable securities or instruments. Any action likely to cause insolvency or substantial dissipation of assets or earnings of the institution or likely to seriously weaken its condition or otherwise seriously prejudice the interest of its investors/clients. 4301Q.12.APP. s. rule. Continued and flagrant violation of any law.6a and b.Page 2 u. w. t. regulation or written agreement between the institution and the BSP. p. Failure to heed warnings and admonitions of the supervisory authorities of the institution. Q-24 05. Operating the institution with excessive volume of out-of-territory loans. Excessive volume of non-earning assets. Non-observance of the principles and the requirements for managing and monitoring large exposures and credit risk concentrations under Subsec.31 o. a. domestically incorporated or branch of a foreign entity. . 9194.2. and all other institutions. or any other institution supervised and/or regulated by the BSP. as insurer. any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety. 9194. including their subsidiaries and affiliates supervised and/ or regulated by the Bangko Sentral ng Pilipinas (BSP). Title.These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA. (a) An insurance company includes those entities authorized to transact insurance business in the Philippines. Rule 3. 9160”.1.A. 9160. NO.A. Transacting insurance business includes making or proposing to make.b. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank. . holding companies. quasi-bank. damage or liability arising from an unknown or contingent event. 9194 (Appendix to Sec. insurance brokers.These Rules shall be known and cited as the “Revised Rules and Regulations Implementing R. No. – For purposes of this Act. Purpose. as amended by R. offshore banking units. (the Anti-Money Laundering Act of 2001 [AMLA]).A. holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). professional reinsurers. No.31 REVISED IMPLEMENTING RULES AND REGULATIONS R.APP. Rule 1. No. trust entity. 4691Q) RULE 1 TITLE Rule 1. the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. any insurance contract.A. quasi-banks. Q-25 05.a. the following terms are hereby defined as follows: Rule 3. Consistent with its foreign policy. NO. trust entity or any other institution supervised or regulated by the BSP. trust entities. (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank. Declaration of Policy. AS AMENDED BY R.a. or as surety. doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . reinsurance brokers. quasi-bank. as amended by R. non-stock savings and loan associations.a. RULE 2 DECLARATION OF POLICY Rule 2.It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity. pawnshops. Banks. Definitions.Page 1 . Covered Institution refers to: Rule 3. insurance agents. whether life or non-life and whether domestic.12. . Insurance companies. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss. RULE 3 DEFINITIONS Rule 3.A. salesmen. No. and other entities managing securities or rendering similar services. associated persons of brokers or dealers. employee or officer of an insurer in which any reinsurance is effected. not being a duly authorized agent. (c) A securities salesman includes a natural person. association or corporation that transacts solely and exclusively reinsurance business in the Philippines. brokers. Q Regulations Appendix Q-25 . (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (ii) mutual funds or open-end investment companies. (iii) foreign exchange corporations.APP. close-end investment companies. 612. investment agents and consultants. (e) A reinsurance broker includes any person who. and (iv) other entities administering or otherwise dealing in currency. acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance. and transfer companies and other similar entities. common trust funds. on behalf of an insured other than himself.D. including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P. (c) An insurance broker includes any person who acts or aids in any manner in soliciting. A holding company system includes a holding company together with its controlled insurers and controlled persons. partnership. investment houses. negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance.) No. domestically incorporated or a branch of a foreign entity. Q-25 05. employed as such or as an agent. cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. including securities of the Government and its instrumentalities. by a dealer. or an agent or a person whose functions are solely clerical or ministerial. remittance.12. commodities or financial derivatives based thereon. whether regularly or on an isolated basis. (i) Securities dealers. (d) A professional reinsurer includes any person. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. whether domestic. but does not include a salesman. valuable objects.3. money payment. Manual of Regulations for Non-Bank Financial Institutions . issuer or broker to buy and sell securities. as amended. 612.Page 2 Rule 3. pre-need companies or issuers and other similar entities.31 Presidential Decree (P. as amended. for any insurance company authorized to do business in the Philippines. trading advisors. (f) A holding company includes any person who directly or indirectly controls any authorized insurer.a. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. in the underwriting of securities of another person or enterprise. (e) An investment house includes an enterprise which engages or purports to engage.D. money changers. analyzes reports concerning the capital market. holding or management of such funds and/or properties for the use. as to the value of any security and as to the advisability of trading in any security. any redeemable security of which it is the issuer. sales or exchanges of securities. including their employees. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . an investment fund. (3) any person who undertakes the management of portfolio securities of investment companies. (m) A money payment. editor. for the purpose of administration. (i) A pre-need company or issuer includes any corporation supervised and/ or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. either directly or through circulars. or otherwise transacts business.APP. (e) such other person not within the intent of this definition. except: (a) any bank or trust company. including the arrangement of purchases.12. payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life. news. It includes any insurance policy holder. reporter. (b) any journalist. pension.Page 3 . accountant. (k) Investment Advisor/Agent/ Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others. a pension fund or a company or person whose assets are managed by an asset manager. remittance and transfer company includes any person offering to pay. as well as the beneficiary of said transactions. reports. (g) A closed-end investment company includes an investment company other than open-end investment company. internment and other plans. or (2) who for compensation and as part of a regular business. or a grantor of a trust. teacher. remit or transfer or transmit money on behalf of any person to another person. in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. columnist. from time to time. lawyer. whether regularly or on an isolated basis. education. with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted. issues or promulgates. whether actual or prospective. (d) any contract market. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage. approve.31 (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding. (c) the publisher of any bonafide newspaper. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. Q-25 05. publications or writings. benefit or advantage of the trustor or of others known as beneficiaries. A customer also includes the beneficiary of a trust. business or financial publication of general and regular circulation. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need. (n) “Customer” refers to any person or entity that keeps an account. provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. which the Commission may. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan. exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee. disbursements. (4) Taking into account all known circumstances. within the limits of the AMLA. the SEC and the IC. effects and any amount realized from any unlawful activity. It includes: (1) All material results. and (3) All moneys. (2) Drafts. (2) All monetary. Supervising authority refers to the BSP. Rule 3.000. claim or right with respect thereto. profits. refunds and other similar items for the financing. the BSP. and (5) Other similar instruments where title thereto passes to another by endorsement. expenditures. Monetary instrument refers to: (1) Coins or currency of legal tender of the Philippines. or of any other country. Rule 3.c. regardless of amount. deposit Q Regulations Appendix Q-25 . trust certificates.31 (o) “Property” includes any thing or item of value. Rule 3. Person refers to any natural or juridical person. custodial receipts or deposit substitute instruments.b.1. where any of the following circumstances exists: (1) There is no underlying legal or trade obligation. commercial papers. Suspicious transactions are transactions. Manual of Regulations for Non-Bank Financial Institutions . it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the act. financial or economic means. (5) Any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution.e. operations. Rule 3. Rule 3. assignment or delivery. (4) Contracts or policies of insurance.b. documents. tangible or intangible. Rule 3. Rule 3.12. bonds. (2) The client is not properly identified. (3) The amount involved is not commensurate with the business or financial capacity of the client. the SEC or the IC. Offender refers to any person who commits a money laundering offense.g.Page 4 certificates.00 within one (1) banking day. (3) Securities or negotiable instruments. life or non-life. Covered transaction is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of PhP500. payments.APP. Proceeds refers to an amount derived or realized from an unlawful activity. Q-25 05. and maintenance of any unlawful activity. (6) The transaction is in any way related to an unlawful activity or any money laundering activity or offense under this act that is about to be. transaction tickets and confirmations of sale or investments and money market instruments. Where the BSP. SEC or IC supervision applies only to the registration of the covered institution. costs.f. outlays. real or personal. and contracts of suretyship.d. papers or things used in or having any relation to any unlawful activity. purpose or economic justification. devices. accounts. checks and notes. privilege. charges. trading orders. analogous or identical to any of the foregoing. shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. or (7) Any transaction that is similar. or any interest therein or any benefit. is being or has been committed. No. 15 and 16 of R. has secured or obtained. 12.12. panel or group of which he is a member.A. (14)Directly or indirectly requesting or receiving any gift. 3019. (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den. 9. advantage or preference in the discharge of his official. Transaction refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. (3) Sale of prohibited drugs. into any contract or transaction manifestly and grossly disadvantageous to the same. c. 6.APP. (2) Importation of prohibited drugs. otherwise known as the Comprehensive Dangerous Drugs Act of 2002. present or other pecuniary or material benefit. 8. 3019. (D) Plunder under R. (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity. or having material interest in any transaction or act requiring the approval of a board. to the following: (A) Kidnapping for ransom under Article 267 of Act No. misuse or malversation of Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 .A. committee. percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party. or giving any private party any unwarranted benefits. evident bad faith or gross inexcusable negligence. and which exercise of discretion in such approval. administrative or judicial functions through manifest partiality. as amended. (17) Entering. h and i of R. No.i. otherwise known as the Anti-Graft and Corrupt Practices Act. panel or group. No. g.A. from any person for whom the public officer. It also includes any movement of funds by any means with a covered institution. as amended. in consideration for the help given or to be given.h.31 Rule 3. 5. share. or will secure or obtain. Rule 3. as amended. 14. without prejudice to Section 13 of R. in any manner or capacity. (15) Directly or indirectly requesting or receiving any gift. whether or not the public officer profited or will profit thereby. Q-25 05. Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10)Possession of prohibited drugs (11)Use of prohibited drugs (12)Cultivation of plants which are sources of prohibited drugs (13)Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b.A. conversion. Unlawful activity refers to any act or omission or series or combination thereof involving or having relation. otherwise known as the Revised Penal Code. 13. (20) Plunder through misappropriation. on behalf of the government. even if he votes against the same or he does not participate in the action of the board. for himself or for another.Page 5 . 10. (4) Administration of prohibited drugs. e. (1) Kidnapping for ransom (B) Sections 4. 9165. 3815. 7080. or in which he is prohibited by the Constitution or by any law from having any interest. any government permit or license. No. including the government. (16) Causing any undue injury to any party. for personal gain. wherein the public officer in his official capacity has to intervene under the law. (19) Directly or indirectly becoming interested. present. (25) Plunder by taking undue advantage of official position. committed in an uninhabited place and by a band. or by denying having received such money. (31) Piracy on the high seas. directly or indirectly. (35) Estafa with unfaithfulness or abuse of confidence by altering the substance. as amended and P. or falsely pretending to possess power. credit. or for administration.D.D. (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting. relationship. connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. Q-25 05. (G) Piracy on the high seas under the Revised Penal Code. 299. or with use of firearms on a street. 295. gift. 300. even though such obligation be based on an immoral or illegal consideration. (34) Qualified theft. goods. (24) Plunder by establishing agricultural. percentage. (27) Robbery with physical injuries. No. instrumentalities or government-owned or controlled corporations or their subsidiaries. share. No. qualifications. as amended. money. quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so. road or alley. Manual of Regulations for Non-Bank Financial Institutions . authority. influence. directly or indirectly. agencies. or other property. even though such obligation be totally or partially guaranteed by a bond. (30) Masiao. Q Regulations Appendix Q-25 . and by writing any document above such signature in blank.12. (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions.APP. 301 and 302 of the Revised Penal Code. any shares of stock. (38) Estafa by using a fictitious name. (29) Jueteng. industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests. (H) Qualified theft under Article 310 of the Revised Penal Code. (23) Plunder by obtaining. (I) Swindling under Article 315 of the Revised Penal Code. 532. (E) Robbery and extortion under Articles 294. (33) Aiding and abetting pirates and brigands.31 public funds or raids upon the public treasury. 296.Page 6 (F) Jueteng and Masiao punished as illegal gambling under P. (21) Plunder by receiving. (28) Robbery in an uninhabited house or public building or edifice devoted to worship. kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned. 1602. any commission. (26) Robbery with violence or intimidation of persons. (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank. property. goods or any other personal property received by the offender in trust or on commission. (32) Piracy in inland Philippine waters. equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking. as amended. receiving or accepting. to the prejudice of another. or under any other obligation involving the duty to make delivery or to return the same. as amended. to the prejudice of the offended party or any third person. 31 agency. business or imaginary transactions. otherwise known as the Electronic Commerce Act of 2000. K. fineness or weight of anything pertaining to his art or business. (45) Fraudulent importation of any vehicle. or destroy using a computer or other similar information and communication devices. No. which refers to: (58) the unauthorized copying. but not limited to. to sign any document. (52) Selling smuggled article after fraudulent importation. uploading. by means of deceit.A. or issuing a check in payment of an obligation when the offender has no funds in the bank. (54) Fraudulent practices against customs revenue. without the knowledge and consent of the owner of the computer or information and communications system. (40) Estafa by pretending to have bribed any government employee. or (63) the unauthorized broadcasting. Violations of the Consumer Act or R. in a manner that infringes intellectual property rights. electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works.2. (41) Estafa by postdating a check. destruction. (53) Transportation of smuggled article after fraudulent importation. K. alteration. (62) the unauthorized storage. (51) Buying smuggled article after fraudulent importation.A. communication. theft or loss of electronic data messages or electronic document. of protected material. (59) the unauthorized dissemination. resulting in the corruption. No. substitution. document or any other papers. or his funds deposited therein were not sufficient to cover the amount of the check. steal. the internet. through the use of telecommunication networks. concealing or destroying. modification. any court record.12. (44) Estafa by removing. office files.Page 7 . Hacking or cracking.1. such as. 455 and 1937. removal. (48) Assisting in any fraudulent exportation. (42) Estafa by inducing another. (39) Estafa by altering the quality. 8792. Piracy. (J) Smuggling under R.APP. alteration. (60) the unauthorized importation. alter. including (57) the introduction of computer viruses and the like. making available to the public. (49) Receiving smuggled article after fraudulent importation. (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game. reproduction. (K) Violations under R. distribution. in whole or in part. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 .A. (47) Assisting in any fraudulent importation. (61) the unauthorized use. K. which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system. (50) Concealing smuggled article after fraudulent importation. downloading. or (56) any access in order to corrupt. Nos. (46) Fraudulent exportation of any vehicle.3. Q-25 05. or by means of other similar deceits. (84) Other violations of the provisions of the E-Commerce Act. (76) Deceptive sales acts and practices. (87) Murder. 6235.A. (65) Sale of any product that has been banned by a rule under the Consumer Act. a series of transactions in securities that depresses their price to induce the sale of a security. (93) Manipulation of security prices by effecting. offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC. deceptive or misleading advertisements. (66) Sale of any adulterated or mislabeled product using electronic documents. (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market. (80) Violation of price tag requirements. whether of the same or different class. No.12. a series of transactions in securities that raises their prices to induce the purchase of a security. (86) Destructive arson.Page 8 and murder. controlled or commonly controlled company by others. No. of the same issuer or of a controlling. as amended. (78) Fraudulent practices relative to weights and measures. (79) False representations in advertisements as the existence of a warranty or guarantee. (91) Violation of reportorial requirements imposed upon issuers of securities. counterfeiting or simulating any mark. (81) Mislabeling consumer products. (82) False. (69) Revealing trade secrets. (68) Forging. (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act.APP. Q-25 05. otherwise known as the Securities Regulation Code of 2000. stamp. alone or with others. (85) Hijacking. (83) Violation of required disclosures on consumer loans.A. (74) Introduction into commerce of any mislabeled or banned hazardous substance. (70) Alteration or removal of the labeling of any drug or device held for sale. (88) Hijacking. (89) Sale. (M) Fraudulent practices and other violations under R. (75) Alteration or removal of the labeling of a hazardous substance. destructive arson Q Regulations Appendix Q-25 .31 (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act. tag. Manual of Regulations for Non-Bank Financial Institutions . as defined under the Revised Penal Code. label or other identification device. whether of the same or different class. 8799. alone or with others. (L) Hijacking and other violations under R. destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets. (77) Unfair or unconscionable sales acts and practices. (73) Sale of any drug or device beyond its expiration date. including those perpetrated by terrorists against noncombatant persons and similar targets. (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act. (94) Manipulation of security prices by effecting. (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe. of the same issuer or of a controlling. controlled or commonly controlled company by others. (67) Adulteration or misbranding of any consumer product. (103) Engaging in any act. for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange. (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer. alone or with others. (104) Insider trading. Q-25 05. a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . (110) Violations on the restrictions on borrowings by members. transaction. (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made. (107) Effecting any transaction in any security.APP. (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman. squeezing the float. (100) Execution of short sales or stoploss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors. unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC. painting the tape. or acting as a salesman. hype and dump. (109) Violations of margin requirements. (99) Sale or purchase of any security using any manipulative deceptive device or contrivance. or an associated person of any broker or dealer without any registration from the Commission. obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC. fixing or stabilizing the price of such security. in the light of the circumstances under which they were made. (111) Aiding and Abetting in any violations of the Securities Regulation Code. (108) Making use of the facility of a clearing agency which is not registered with the SEC. (112) Hindering. not registered with the SEC. scheme or artifice to defraud in connection with the purchase and sale of any securities. not misleading. in an Exchange or using the facility of an Exchange which is not registered with the SEC. (101) Employment of any device. which he knew or had reasonable ground to believe was so false and misleading. boiler room operations and such other similar devices.31 (95) Manipulation of security prices by effecting. practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person. alone or with others. any series of transactions for the purchase and/ or sale of any security traded in an Exchange for the purpose of pegging. (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security. (97) Manipulation of security prices by making false or misleading statements with respect to any material fact. or reporting such transaction. brokers and dealers. (98) Manipulation of security prices by effecting.Page 9 .12. 1. Rule 5. . Q-25 05. involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. RULE 6 PROSECUTION OF MONEY LAUNDERING Rule 6. Money laundering is a crime whereby the proceeds of an unlawful activity as herein defined are transacted. or relates to. involves. In determining whether or not a felony or offense punishable under the penal laws of other countries. Investigation of Money Laundering Offenses. is “of a similar nature”. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity. Q Regulations Appendix Q-25 . RULE 4 MONEY LAUNDERING OFFENSE Rule 4. and (d) Other violations of this act. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC).12. Attempts at Transactions.Page 10 Rule 5. the proceeds of any unlawful activity. thereby making them appear to have originated from legitimate sources. (114) Any other violations of any of the provisions of the Securities Regulation Code.APP. .The AMLC shall investigate: (a) Suspicious transactions. Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing.The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. (b) Covered transactions deemed suspicious after an investigation conducted by the AMLC. (c) Money laundering activities. the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3. involving or relating to the proceeds of any unlawful activity. transacts or attempts to transact said monetary instrument or property. Prosecution of Money Laundering (a) Any person may be charged with and convicted of both the offense of money Manual of Regulations for Non-Bank Financial Institutions .2. Accordingly. Rule 5. fails to do so. RULE 5 JURISDICTION OF MONEY LAUNDERING CASES AND MONEY LAUNDERING INVESTIGATION PROCEDURES (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries.31 (113) Violations of any of the provisions of the implementing rules and regulations of the SEC.1. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents. Jurisdiction of Money Laundering Cases.i.1. as to constitute the same as an unlawful activity under the AMLA.3. Money Laundering Offense. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. the reports required under Rule 9.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing. Knowledge of the offender that any monetary instrument or property represents. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. however. Rule 6.The functions of the AMLC are defined hereunder: (1) to require and receive covered or suspicious transaction reports from covered institutions. RULE 7 CREATION OF ANTI-MONEY LAUNDERING COUNCIL (AMLC) Rule 7.3. shall act in his stead in the AMLC. or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the application Ex-Parte by the AMLC to the Court of Appeals for a Freeze Order with respect to the monetary instrument or property involved therein and resort to other remedies provided under the AMLA.12.2. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt. Unanimous Decision. Q-25 05. or the Ombudsman. . Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan.The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules.6. may be established by direct evidence or inferred from the attendant circumstances. after investigation. However. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice. Rule 6. Rule 6. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . involves or relates to the proceeds of any unlawful activity.a.2.APP. as the case may be.31 laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. it shall cause a complaint to be filed. including the element of knowledge that the monetary instrument or property represents. Rule 6. When the AMLC finds. Rule 7. Functions. . as the case may be. the officer duly designated or authorized to discharge the functions of the Governor of the BSP.The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the BSP as Chairman. and the latter should find probable cause of a money laundering offense.5. it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. Composition. absence or disability of any member to discharge his functions. which shall then conduct the preliminary investigation of the case. involves. Rule 7.Page 11 .1. the Commissioner of the Insurance Commission and the Chairman of the SEC as members. including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. pursuant to Section 7 (4) of the AMLA.4. before the Department of Justice or the Ombudsman. Rule 6. the Chairman of the SEC or the Insurance Commissioner. No element of the unlawful activity. the rules of court and other pertinent laws and rules. as the case may be. in the case of the incapacity. that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA.b.7.1. Rule 6. . involving. (5) to investigate suspicious transactions and covered transactions deemed suspicious after an investigation by the AMLC. which may include the use of its personnel. The AMLC may require the intelligence units of the Armed Forces of the Philippines. department.31 (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered or suspicious transaction report. resolutions and other directives of the United Nations (UN). convention. wherever located. facilities and resources for the more resolute prevention. For this purpose. (10) to enlist the assistance of any branch. the proceeds of an unlawful activity. directly or indirectly. and other international organizations of which the Philippines is a member. the methods and techniques used in money laundering. incidental and justified under the AMLA to counteract money laundering. the Philippine National Police. in any manner or by any means. agency or instrumentality of the government. the Department of Finance. Subject to such limitations as provided for by law. detection and investigation of money laundering offenses. (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. Q Regulations Appendix Q-25 . representing. (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses. implied. including government-owned and -controlled corporations.12. the Department of Justice. in any way. or the execution thereof is likely to prejudice the national interest of the Philippines. on the basis of substantial evidence. track and analyze money laundering transactions for the resolute prevention. resolution or directive where the action sought therein contravenes the provisions of the Constitution. as well as their attached agencies. or believed by the Council. (6) to apply before the Court of Appeals. money laundering activities and other violations of this Act. to be. in respect of conventions. the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database.APP. and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may. Q-25 05. the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store. Manual of Regulations for Non-Bank Financial Institutions . facilitate the resolute prevention. for the freezing of any monetary instrument or property alleged to be proceeds of any unlawful activity as defined under Section 3(i) hereof. (9) to develop educational programs on the pernicious effects of money laundering. detection and investigation of money laundering offenses and prosecution of offenders. or related to. necessary. the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. However. bureau. office. the AMLC may refuse to comply with any such request. (7) to implement such measures as may be inherent. or request for assistance from a foreign State. in whole or in part.Page 12 (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. in undertaking any and all antimoney laundering operations. the UN Security Council. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. Ex-Parte. or any other branch. Seconded personnel shall receive. in lieu of their respective compensation packages from their respective mother units. agency or instrumentality of the government.APP. and all the members of the Secretariat. or as often as may be necessary at the call of the Chairman. rules. RULE 9 PREVENTION OF MONEY LAUNDERING. any information known to them by reason of their office.1. whether permanent. require a system of Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 .2.a. the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. They shall maintain a system of verifying the true identity of their clients and. He shall be considered a regular employee of the BSP with the rank of Assistant Governor.In organizing the Secretariat.12.The members of the AMLC. the Executive Director. office. .Page 13 . This prohibition shall apply even after their separation from the AMLA. continuously or cumulatively. unquestionable integrity and known probity. Rule 7. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC. and shall be entitled to such benefits and subject to such rules and regulations. shall not reveal. for at least five (5) years in the BSP. the SEC or the IC. subject to existing laws and Civil Service Rules and Regulations. as are applicable to officers of similar rank.The AMLC shall meet every first Monday of the month. at least thirty-five (35) years of age. Covered institutions shall establish and record the true identity of its clients based on official documents. Detail and Secondment.The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP. the salaries. Composition. CUSTOMER IDENTIFICATION REQUIREMENTS AND RECORD KEEPING Rule 9. Meetings. . (11) To impose administrative sanctions for the violation of laws.3. in case of corporate clients. Detailed personnel shall continue to receive their salaries. The Executive Director. Rule 8. bureau. Q-25 05. the AMLC may choose from those who have served. including government-owned and controlled corporations.3. . must have served at least five (5) years either at the BSP. department. Customer Identification Requirements Rule 9. the SEC or the IC.The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. In case of violation of this provision. Customer Identification. regulations and orders and resolutions issued pursuant thereto. RULE 8 CREATION OF A SECRETARIAT Rule 8. in any manner.31 investigation and prosecution of money laundering offenses and other violations of the AMLA. Rule 8. He must be a member of the Philippine Bar. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. as well as prohibitions. Confidentiality Provisions. on detail or on secondment. . Rule 8. emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. . benefits and emoluments from their respective mother units. in undertaking any and all antimoney laundering operations.1.4. the SEC or the IC and of good moral character.1. 1.Covered institutions shall require customers to produce original documents of identity issued by an official authority. Nominee and Agent Accounts. or terminated. (3) Official address or principal business address. (10) Source of fund(s). wound up or voided. (5) Nationality. closed.31 verifying their legal existence and organizational structure. dissolved.Page 14 Manual of Regulations for Non-Bank Financial Institutions . Dealings with shell companies and corporations. . Rule 9. (4) List of directors/partners. The following minimum information/ documents shall be obtained from customers that are corporate or juridical entities. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. (7) Contact numbers. (2) By-laws. (9) Specimen signature. shut down. it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties.1. nominees. . (6) Nature of work and name of employer or nature of self-employment/ business. should be undertaken with extreme caution. nominee. Minimum Information/ Documents Required for Corporate and Juridical Entities. or that its business or operations has not been or is not in the process of being.12. Rule 9. phased out.c. The following minimum information/documents shall be obtained from individual customers: (1) Name. (3) Permanent address. (4) Date and place of birth. Covered institutions shall also establish and record the true and full identity of such trustees. including shell companies and corporations: (1) Articles of Incorporation/ Partnership. (6) Contact numbers. covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws. (2) Present address.b. Rule 9. . (7) Beneficial owners. Q-25 05.When dealing with customers who are acting as trustee. Minimum Information/ Documents Required for Individual Customers. if any. covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being. bearing a photograph of the customer. and (8) Verification of the authority and identification of the person purporting to act on behalf of the client.APP. (5) List of principal stockholders owning at least two percent (2%) of the capital stock. Examples of such documents are identity cards and passports. being legal entities which have no business substance in their own right but through which financial transactions may be conducted. agent or in any capacity for and on behalf of another. Q Regulations Appendix Q-25 . as well as the authority and identification of all persons purporting to act on their behalf. Trustee.1. agents and other persons and the nature of their capacity and duties.Before establishing business relationships. (8) Tax identification number. and (11) Names of beneficiaries in case of insurance contracts and whenever applicable. Social Security System number or Government Service and Insurance System number.d. Prohibition Against Opening of Accounts Without Face-to-face Contact.1. accounts under fictitious names. Rule 9. . relationships and transactions such that any account. – Records shall be retained as originals in such forms as are admissible in court pursuant to Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . Prohibition Against Certain Accounts. and all other similar accounts shall be absolutely prohibited. That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records. in accordance with the aforementioned client identification requirements. Record Keeping: Kinds of Records and Period for Retention. as the case may be. . and/or the courts to establish an audit trail for money laundering. Rule 9. Covered institutions shall prepare and maintain documentation.2. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. Closed Accounts.No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9. the records on customer identification. Rule 9. and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution.2.Page 15 .Peso and foreign currency non-checking numbered accounts shall be allowed: Provided.f.1. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. – All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions.c. .2. The provisions of existing laws to the contrary notwithstanding.12.e. – If a money laundering case based on any record kept by the covered institution concerned has been filed in court.c of these Rules.2.1.1. Rule 9. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. Rule 9.2.d. Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. Form of Records.e. Rule 9. relationship or transaction can be so reconstructed as to enable the AMLC.APP. . Numbered Accounts. Rule 9.b.All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from 17 October 2001 or from the dates of the accounts or transactions. until it is confirmed that the case has been finally resolved or terminated by the court. Retention of Records in Case a Money Laundering Case has been Filed in Court.31 Rule 9. anonymous accounts.With respect to closed accounts.2. Q-25 05. Record Keeping Requirements Rule 9. whichever is later. on their customer accounts. said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules. account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed.g.a. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts. Existing and New Accounts and New Transactions. A. Covered institutions shall use the existing forms for Covered Transaction Reports and Suspicious Transaction Reports. to any person the fact that a covered or suspicious transaction report was made. directly or indirectly. provided that.The Covered Transaction Report (CTR) and the Suspicious Transaction Report (STR) shall be in the forms prescribed by the AMLC. as amended. covered institutions and their officers.3. or any other information in relation thereto. as amended. directly or indirectly. employees.Covered institutions shall report to the AMLC all covered transactions and suspicious transactions within five (5) working days from occurrence thereof.3.A.1.12. advisors.31 existing laws and the applicable rules promulgated by the Supreme Court. to any person. or as may be determined by the AMLC. Period of Reporting Covered Transactions and SuspiciousTransactions.3. leased lines. covered institutions and their officers and employees. in order to allow the covered institutions to configure their respective computer systems. R.A. or media shall be held criminally liable. until such time as the AMLC has issued new sets of forms. the covered institution shall report the same as a suspicious transaction. agents. 8791 and other similar laws. but are prohibited from communicating. 6426. consultant or associate of the covered institution. 1405. - of Covered Rule 9. No. Reporting Transactions. in any manner or by any means. consultants or associates are prohibited from communicating. Rule 9. entity. the concerned officer and employee of the covered institution. the concerned officer. 9194. In case of violation hereof. the fact that a covered transaction report was made. Neither may such reporting be published or aired in any manner or form by the mass media. in any manner or by any means. shall not be deemed to have violated R. Rule 9. Exemption from Bank Secrecy Laws. or the media. Rule 9. The final flow and procedures for such reporting shall be mapped out in the manual of operations to be issued by the AMLC. advisor. or any other information in relation thereto. R. No. Confidentiality Provisions. No. Rule 9. electronic mail.3. or other similar devices. In case of violation thereof. or through internet facilities. The reporting of covered transactions by covered institutions shall be deferred for a period of sixty (60) days after the effectivity of R. Q Regulations Appendix Q-25 . the contents thereof. representative.Page 16 either via diskettes. employee.d. – When reporting covered transactions or suspicious transactions to the AMLC.a.A. with the corresponding hard copy for suspicious transactions.3. Rule 9. all covered transactions during said deferment period shall be submitted thereafter. the contents thereof.c. – When reporting covered or suspicious transactions to the AMLC. Rule 9. . Manual of Regulations for Non-Bank Financial Institutions .b.APP. Q-25 05. shall be criminally liable.b. representatives.2.3. Covered Transaction Reports and Suspicious Transaction Reports shall be submitted in a secured manner to the AMLC in electronic form.3. Should a transaction be determined to be both a covered and a suspicious transaction.b. . agent. No. Covered and Suspicious Transaction Report Forms. unless the supervising authority concerned prescribes a longer period not exceeding ten (10) working days. the criminal proceedings involving the unlawful activity to which said monetary instrument or property is any way related. – No administrative.c. by personal delivery. The name(s) of the account owner(s) or holder(s).1.3. specifying all the pertinent and relevant information which shall include the following: 1. – Rule 10.2. (c) The freeze order shall be effective for twenty (20) days unless extended by the Court of Appeals upon application by the AMLC. Rule 10.Page 17 . the covered institution concerned shall immediately freeze the monetary instrument or property and related web of accounts subject thereof.31 Rule 9.3. the AMLC may file an Ex-Parte application before the Court of Appeals for the issuance of a freeze order on any monetary instrument or property subject thereof prior to the institution or in the course of. When the AMLC May Apply for the Freezing of Any Monetary Instrument or Property. prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be. (b) Considering the intricate and diverse web of related and interlocking accounts pertaining to the monetary instrument(s) or property(ies) that any person may create in the different covered institutions. Q-25 05. The covered institution shall likewise immediately furnish a copy of the notice of the freeze order upon the owner or holder of the monetary instrument or property or related web of accounts subject thereof. whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. Definition of Probable Cause.Probable cause includes such facts and circumstances which would lead a reasonably discreet. (a) After an investigation conducted by the AMLC and upon determination that probable cause exists that a monetary instrument or property is in any way related to any unlawful activity as defined under Section 3 (i). Rule 10. Safe Harbor Provisions. . the AMLC may apply to the Court of Appeals for the freezing. Rule 10. criminal or civil proceedings. and monetary instruments or properties named in the application of the AMLC but also all other related web of accounts pertaining to other monetary instruments and properties. The account number(s).e.3.a. not only of the monetary instruments or properties in the names of the reported owner(s)/holder(s). property or related web of accounts as of the time they were frozen. the funds and sources of which originated from or are related to the monetary instrument(s) or property(ies) subject of the freeze order(s). is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. shall lie against any person for having made a covered transaction report or a suspicious transaction report in the regular performance of his duties and in good faith. Rule 10. The amount of the monetary instrument. a detailed written return on the freeze order. Within twenty-four (24) hours from receipt of the freeze order. RULE 10 APPLICATION FOR FREEZE ORDERS Rule 10.APP.12. 2. Upon receipt of the notice of the freeze order. their branches and/or other units.3.b. the covered institution concerned shall submit to the Court of Appeals and the AMLC. Duty of Covered Institution Upon Receipt Thereof. 3. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 .3. The time when the freeze thereon took effect. Q Regulations Appendix Q-25 . R.A. as amended.A. the covered institution shall freeze these related web of accounts wherever these funds may be found. the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates upon order of any competent court in cases of violation of this Act. except in cases as provided under Rule 11. Extension of the Freeze Order. . the AMLC may apply in the same court for an extension of said period. otherwise known as the Comprehensive Dangerous Drugs Act of 2002.c shall include the fact of such freezing and an explanation as to the grounds for the identification of the related web of accounts.No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period.Before the twenty (20) day period of the freeze order issued by the court of appeals expires.6. Upon the timely filing of such application and pending the decision of the Court of Appeals to extend the period. said period shall be deemed suspended and the freeze order shall remain effective. otherwise known as the Revised Penal Code. Rule 10. 1405. No. Notwithstanding the provisions of R. Prohibition Against Issuance of Freeze Orders Against Candidates for an Electoral Office During Election Period. (b) Sections 4. 6426. 9.2. 6235. Related Web of Accounts pertaining to the money instrument or property subject of the freeze order is defined as those accounts. and 6. 15 and 16 of R. 9165. Any information on the related web of accounts pertaining to the monetary instrument or property subject of the freeze order. 8791.Page 18 Rule 10. 5.2. Definition of Related Web of Accounts.A. No. No. (c) Hijacking and other violations under R.4.The AMLC may inquire into or examine deposit and investments with any banking institution or non-bank financial institution and their subsidiaries and affiliates without a Court Order where any of the following unlawful activities are involved: (a) Kidnapping for ransom under Article 267 of Act No. 13. The return of the covered institution as required under rule 10.5. No.5. 14. as amended.6. RULE 11 AUTHORITY TO INQUIRE INTO BANK DEPOSITS Rule 11.A. . Upon receipt of the freeze order issued by the court of appeals and upon verification by the covered institution that the related web of accounts originated from and/or are materially linked to the monetary instrument or property subject of the freeze order. 10. Rule 11. as amended. the funds and sources of which originated from and/or are materially linked to the monetary instrument(s) or property(ies) subject of the freeze order(s).A. and other laws. 3815. Rule 10.1. 8. No.12.APP. destructive arson and murder. Authority to Inquire into Bank Deposits with Court Order. Authority to Inquire into Bank Deposits Without Court Order. However. . All relevant information as to the nature of the monetary instrument or property.3. the covered institution shall not lift the effects of the freeze order without securing official confirmation from the AMLC. Q-25 05. R. 12. as defined under the Revised Manual of Regulations for Non-Bank Financial Institutions . when it has been established that there is probable cause that the deposits or investments involved are related to an unlawful activity as defined in Section 3 (i) hereof or a money laundering offense under Section 4 hereof.31 4. – The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. immediately upon receipt of the AMLC Resolution. and there is probable cause that the deposits or investments with any banking or non-banking financial institution and their subsidiaries and affiliates are in anyway related to these unlawful activities the AMLC shall issue a resolution authorizing the inquiry into or examination of any deposit or investment with such banking or non-banking financial institution and their subsidiaries and affiliates concerned.31 Penal Code. and for segregation or exclusion of the monetary instrument or property corresponding thereto. including those perpetrated by terrorists against noncombatant persons and similar targets. the Revised Rules of Court on civil forfeiture shall apply. Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA. related to said report.Page 19 . – When there is a Suspicious Transaction Report or a Covered Transaction Report deemed suspicious after investigation by the AMLC. . Authority to Institute Civil Forfeiture Proceedings.a. Duty of the banking institution or non. Q-25 05. the BSP may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates when the examination is made in the course of a periodic or special examination. The BSP shall promulgate its rules of examination for ensuring compliance by banks and non-bank financial institutions and their subsidiaries and affiliates with the AMLA and these rules. Claim on Forfeited Assets.3. When Civil Forfeiture May be Applied. ordered the seizure of any monetary instrument or property.a. by verified petition. Rule 12. Rule 11. .3.Where any of the unlawful activities enumerated under the immediately preceding Rule 11. The banking institution or the non-banking financial institution and their subsidiaries and affiliates shall. in whole or in part. RULE 12 FORFEITURE PROVISIONS Rule 12. Rule 11.b. Any findings of the BSP which may constitute a violation of any provision of this act shall be transmitted to the AMLC for appropriate action. and the court has. Additional Exception to the Bank Secrecy Act. Rule 11. as amended. for a declaration that the same legitimately belongs to him.BSP Authority to Examine deposits and investments. in a petition filed for the purpose. Rule 11. in default of which the said order shall become final and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . Procedure For Examination Without A Court Order.2.banking institution upon receipt of the AMLC Resolution. in accordance with the rules of examination of the BSP.12.2.2. BSP Rules of Examination. allow the AMLC and/or its authorized representative(s) full access to all records pertaining to the deposit or investment account.APP.2 are involved. directly or indirectly. the offender or any other person claiming an interest therein may apply. . Rule 12.3.To ensure compliance with this act.1. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture. 1. and said order cannot be enforced because any particular monetary instrument or property cannot. Q-25 05.Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA. diminished in value or otherwise rendered worthless by any act or omission. . be at all times recognized. any or all of the persons named in said request. RULE 13 MUTUAL ASSISTANCE AMONG STATES Rule 13. thereby rendering the same difficult to identify or be segregated for purposes of forfeiture. applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of. Obtaining Assistance from Foreign States. attributable to the offender.4. or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court. converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof. accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. Request for Assistance from a Foreign State.31 executory. Rule 13. be located. . restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules. Manual of Regulations for Non-Bank Financial Institutions . (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules. Payment in Lieu of Forfeiture. restraining and seizing assets alleged to be proceeds of any unlawful activity. money laundering offense or any other matter directly or indirectly related thereto. This provision shall apply in both civil and criminal forfeiture. . and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided. the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for Q Regulations Appendix Q-25 . freezing.12.2. directly or indirectly. destroyed. instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein. (3) to the extent allowed by the law of the foreign state. for this purpose. the court may. and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either.3. removed. The principles of mutuality and reciprocity shall. with due diligence. Rule 13. (2) obtaining information that it needs relating to any covered transaction.APP. or it has been substantially altered. freezing. or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity.The AMLC may execute a request for assistance from a foreign state by: (1) tracking down. .Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense. Rule 12. That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state.The AMLC may make a request to any foreign state for assistance in (1) tracking down. This provision shall apply in both civil and criminal forfeiture.Page 20 delaying the execution thereof. or it has been concealed. Powers of the AMLC to Act on a Request for Assistance from a Foreign State. and (8) contain such other information as may assist in the execution of the request. Suppletory Application of the Revised Rules of Court. material or object which may be of assistance to the investigation or prosecution. – Rule 13. Requirements for Requests for Mutual Assistance from Foreign States. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 .Page 21 . The certificate of authentication may also be made by a secretary of the embassy or legation. That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either.7. is to be produced. Rule 13. (7) give all the particulars necessary for the issuance by the court in the requested state of the writs. (4) give particulars sufficient to identify any covered institution believed to have any information.6. material or object named in said request: Provided. (3) give sufficient particulars as to the identity of said person. Q-25 05. and authenticated by the seal of his office.APP. magistrate or equivalent officer in or of. protectorate or colony. consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept. a document is authenticated if the same is signed or certified by a judge.12. consul general.The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines.1. Rule 13. and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister. (5) ask from the covered institution concerned any information. material or object which may be of assistance to the investigation or prosecution.For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA. orders or processes needed by the requesting state. document. secretary of state. unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction. . or of the person administering the government or a department of the requesting territory. the government of the requesting state. consul. vice consul. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA. Limitations on Requests for Mutual Assistance. or officer in or of. document. Authentication of Documents . the requesting state. (6) specify the manner in which and to whom said information.31 and/or search any or all such persons named therein and/or remove any document.7. A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense. Rule 13. That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state. material or object obtained pursuant to said request. Rule 13.4.5. document. and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided. 0 Million but not more than twice the value of the monetary instrument or property involved in the offense.(1) After due notice and hearing. With respect. the AMLC shall. No.The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than Php100. – The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. and assistance for any of the aforementioned actions. which is subject of a request by a foreign state.00 but not more than Php500. application for examination of witnesses. Authority to Assist the United Nations and other International Organizations and Foreign States. .1. as amended by Manual of Regulations for Non-Bank Financial Institutions .A. Rule 14.7. However. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions. shall be imposed upon a person convicted under Section 4 (b) of the AMLA. and other international organizations of which the Philippines is a member. Rule 14. and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. or both.a. its officers and employees. Rule 14. resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. Penalties under Section 4 (b) of the AMLA.1. included as an extraditable offense in any extradition treaty existing between said state parties.5 Million but not more than Php3. shall be imposed on a person convicted under Section 4(c) of the AMLA. Rule 13.1. resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. money laundering is deemed to be Q Regulations Appendix Q-25 .b. Penalties under Section 4 (a) of the AMLA.12. – The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties.00.1. impose fines upon any covered institution.000. Penalties under Section 4 (c) of the AMLA.1. Penalties for the Crime of Money Laundering.APP. Rule 13. at its discretion.d.c. procuring search warrants. Administrative Sanctions. Rule 14. Q-25 05. convention. resolutions and other directives of the United Nations (UN). the UN Security Council. production of bank documents and other materials and all other actions not specified in the AMLA and these Rules. or any person who violates any of the provisions of R.The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than Php1. .2.31 execution and satisfaction of final judgments of forfeiture.The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Php3. 9160. however. shall be imposed upon a person convicted under Section 4 (a) of the AMLA.000.0 Million. Extradition. . to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on 22 October 2001. the AMLC may refuse to comply with any such request. .Page 22 RULE 14 PENAL PROVISIONS Rule 14.8. 00 but not to exceed Php500. president.00. the penalty shall be imposed upon the responsible officers.000. in addition to the penalties herein prescribed. In case of a breach of confidentiality that is published or reported by media. but in no case shall such fines be less than Php100. shall be imposed on a person convicted for a violation under Section 9(c).00 but not more than Php1. Penalties for Malicious Reporting. in the course of the criminal proceedings. the responsible reporter. Exception. Rule 15. regulations.1. If the offender is a public official or employee.00.2.000. writer. as the case may be.Any person who. for provisional remedies to prevent the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . The fines shall be in amounts as may be determined by the council. The imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the persons responsible for the violations. Rule 14. Rule 14. such as the nature and gravity of the violation or irregularity. If the offender is an alien. . partnership or any juridical person. 9194 and rules. with malice. .If the offender is a corporation. or in bad faith. reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than Php100. Refusal by a Public Official or Employee to Testify.5. he shall. Prohibition against Political Persecution. association. the court may suspend or revoke its license. RULE 15 PROHIBITIONS AGAINST POLITICAL HARASSMENT Rule 15. he shall. – Remedies Rule 15. – The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Php500.000. . shall be imposed on a person convicted under Section 9 (b) of the AMLA. manager and editor-in-chief shall be liable under this act. If the offender is a juridical person. at the discretion of the court: Provided.000.A.APP. .2. Penalties for Breach of Confidentiality.a.4.0 Million. be deported without further proceedings after serving the penalties herein prescribed.2.00 but not more than Php500. Rule 14. That the offender is not entitled to avail the benefits of the Probation Law. taking into consideration all the attendant circumstances. Rule 14.00. Where Offender is a Juridical Person.12. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. or both. publisher.Page 23 . Penalties for Failure to Keep Records . No. in addition to the penalties prescribed herein.The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce.31 R. Provisional Application. Q-25 05. who participated in.3.Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein.00 but not more than Php500. Rule 14.The AMLC may apply. suffer perpetual or temporary absolute disqualification from office.000. . orders and resolutions issued pursuant thereto.6. or allowed by their gross negligence the commission of the crime.000. as the case may be.The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than Php100.000. 2. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA. subject to such guidelines as may be prescribed by their respective supervising authority.c. Every money laundering program shall establish detailed procedures implementing a comprehensive. commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. Rule 17. under their Q Regulations Appendix Q-25 . a system of flagging and monitoring transactions that qualify as suspicious transactions. as part of their money laundering programs.a. the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. converted. No. concealed.2. institute adequate screening and recruitment procedures. the BSP.A.A. as amended by R. Covered institutions shall adopt. which shall be submitted to the Congressional Oversight Committee for approval.A. detection and reporting.Where there is conviction for money laundering under Section 4 of the AMLA. (b) The Supervising Authorities. RULE 16 RESTITUTION Rule 16. However. no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. 9194. No.12. issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of R. .31 monetary instrument or property subject thereof from being removed. Rule 15.Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. No. as amended by R.b. 9160. Implementing Rules and Regulations.2. no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. – (a) Within thirty (30) days from the effectivity of R. However.1.b. including. detection and reporting. adopt internal policies. institutionwide “know-your-client” policy. RULE 17 IMPLEMENTING RULES AND REGULATIONS AND MONEY LAUNDERING PREVENTION PROGRAMS Rule 17. – Rule 17. 9194. regardless of amount or covered Manual of Regulations for Non-Bank Financial Institutions . the SEC and the IC shall.2. Restitution. designate compliance officers at management level. . Rule 17. the BSP. set-up an effective dissemination of information on money laundering activities and their prevention. Q-25 05. procedures and controls. No. but not limited to. Money Laundering Prevention Programs. information dissemination on money laundering activities and their prevention.2.Page 24 own respective charters and regulatory authority. and set-up an audit function to test the system. and the training of responsible officers and personnel of covered institutions.A. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules. Rule 17.APP. 9160. from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. The BSP shall advance the funds necessary to defray the capital outlay. shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be. No. Powers of the Congressional Oversight Committee.The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil.1. .31 transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold.1. and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. as amended by R. Costs and Expenses. is being. or has been committed.These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of R.There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The members Rule 18. suit or proceeding may be paid by the AMLC in advance of the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-25 . 9160.A. No. .2. RULE 19 APPROPRIATIONS FOR AND BUDGET OF THE AMLC Rule 17. Rule 19.4. RULE 18 CONGRESSIONAL OVERSIGHT COMMITTEE Rule 18. criminal or administrative action.3. maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations.12.2. All covered institutions. Training of Personnel. including banks insofar as non-deposit and nongovernment bond investment transactions are concerned. – The budget of 25 Million Pesos appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. Rule 19. Budget. . Composition of Congressional Oversight Committee. The costs and expenses incurred in defending the aforementioned action. Appropriations for succeeding years shall be included in the General Appropriations Act.Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules. 9194.A.The Oversight Committee shall have the power to promulgate its own rules. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. Rule 17. . .APP. Amendments. suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. Q-25 05. to oversee the implementation of this Act.Page 25 . RULE 20 SEPARABILITY CLAUSE Rule 20.All existing freeze orders which the Court of Appeals has extended shall remain effective. rules and regulations or parts thereof. are hereby repealed.12. No.A. R. and the application of such provision or Rule to other persons or circumstances. shall not be affected thereby. No. No. 9194 on Cases for Extension of Freeze Orders Resolved by the Court of Appeals. as amended.Effect of R. Separability Clause.2. as amended.Page 26 Manual of Regulations for Non-Bank Financial Institutions . . RULE 23 TRANSITORY PROVISIONS RULE 21 REPEALING CLAUSE Rule 23.Transitory Provisions. Rule 23.A. 8791. as are inconsistent with the AMLA.A. Rule 21.Existing freeze orders issued by the AMLC shall remain in force for a period of thirty (30) days after effectivity of this act. . unless otherwise dissolved by the same court. RULE 22 EFFECTIVITY OF THE RULES Rule 22.1.31 final disposition of such action. suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. unless extended by the Court of Appeals. Q Regulations Appendix Q-25 . and other similar laws. the other provisions of these Rules. as amended. Q-25 05. 1405. decrees. No. – These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. Repealing Clause. amended or modified accordingly. . . including the relevant provisions of R. 6426.APP. executive orders. Effectivity. – If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid.A. R. – All laws. Loans Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-26 . 4602Q. Q-26 05.1) REVERSE REPURCHASE AGREEMENTS WITH BSP PRO-FORMA ACCOUNTING ENTRIES 1. To record the purchase by IH/FC from BSP of government securities under reverse REPO agreement.APP.31 INVESTMENT HOUSES AND FINANCING COMPANIES (IH/FC) WITH QUASI-BANKING FUNCTIONS (Appendix to Subsec.Reverse Repurchase Agreements with BSP Sold to Clients DR Interest Expense on Borrowed Funds – Bills Payable – Others CR 4.Reverse Repurchase Agreements with BSP Sold to Clients To record payment of client’s claim on the IH/FC DR Bills Payable – Others .Page 1 .12.Government Securities Purchased under Reverse Repurchase Agreements with BSP CR 2.Government Securities Purchased under Reverse Repurchase Agreements with BSP CR Interest Income – Trading Account Securities . Due from BSP (or any appropriate account) To record the subsequent sale by IH/FC of reverse REPO with BSP to clients DR Cash (or any appropriate account) CR 3. DR Trading Account Securities – Loans . Bills Payable – Others . Cash (or any appropriate account) To record BSP’s payment of the reverse REPO agreement DR Due from BSP (or any appropriate account) CR Trading Account Securities – Loans . 3. (for regular DDA) and Memorandum to All Banks and Other Financial Intermediaries Performing Trust. 2. BSP Circular No. Other Fiduciary Business and Investment Management Activities (for CTF and TOFA). The daily DDA balance used in the computation of interest may be obtained from the semi-monthly demand deposit statements of account balances that are available electronically to quasi-banks through EFTIS (for PhilPaSS participants) or monthly through the DDA statements sent by mail (for non-PhilPaSS participants). 4246Q.7) The following are the pertinent information on the computation of quarterly interest payments credited to the demand deposit accounts (DDAs) of quasibanks’ legal reserve deposits with BSP.Page 1 . both dated 18 October 2000 state that computation of quarterly interest payments due on quasibanks’ legal reserve deposits with the BSP is based on the lower of their outstanding daily DDA balance and forty percent (40%) of the reserve requirement (excluding liquidity reserve). The data on reserve requirements are based on the institutions’ Consolidated Report of Condition Required and Available Reserves against deposit substitutes and special financing submitted to the SDC on a weekly basis. Interest rate is at four percent (4%) per annum and interest base at 365 days. The interest credit to each DDA is supported by a credit advice which indicates the period covered by the payment.31 DETAILS ON THE COMPUTATION OF QUARTERLY INTEREST PAYMENTS CREDITED TO THE DEMAND DEPOSIT ACCOUNTS (DDAs) OF QUASI-BANKS’ LEGAL RESERVE DEPOSITS WITH BSP (Appendix to Subsec. 262.12. 1. the credit advices are sent by mail together with their DDA Statement of Accounts.APP. Unless SDC furnishes an amended data. the quasi-bank’s computation is used in determining the forty percent (40%) of the reserve requirement that shall be compared with the outstanding daily balance. 4. as amended. in arriving at the amount of interest credit. the credit advices are released through their authorized quasi-bank representatives together with the cancelled checks drawn against the institutions’ DDA with the BSP while for non-PhilPaSS participants. as amended. Q-27 05. For PhilPaSS participants. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-27 . Only QBs which have not yet submitted their masterlist of NPAs and intend to avail of the incentives and fee privileges of the SPV Act 2nd Phase implementation are allowed to submit a complete inventory of their NPAs in the format prescribed under Circular Letter dated 07 January 2003. c.APP.ph [email protected]. Prior to the filing of any application for transfer/sale of NPAs. b. No.Page 1 . The application shall be accompanied by a written certification signed by a senior officer with a rank of at Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-28 .gov. The applicant may opt to submit the list in hard copy. the list of NPAs to be transferred/sold shall be submitted in soft copy (by electronic mail or diskette) in excel format using the prescribed data structure/format for NPLs and ROPAs to the appropriate department of the SES of the applicant QB at the following addresses: SEDI-SPV@bsp. QBs were requested to submit a complete inventory of their NPAs in the format prescribed under Circular Letter dated 7 January 2003.31 TRANSFER/SALE OF NON-PERFORMING ASSETS TO A SPECIAL PURPOSE VEHICLE OR TO AN INDIVIDUAL (Appendix to Sec. QBs which have already submitted to BSP a masterlist of NPAs as of 30 June 2002 in the 1st Phase implementation of the SPV Act will not be allowed to submit a new/amended masterlist. No.ph SEDII-SPV@bsp. 9182. or transactions involving dacion en pago by the borrower or third party of a non-performing loan (NPL). the applicant shall describe in sufficient detail its proposed transaction. The QBs shall be provided a copy of their reconciled and finalized masterlist for their guidance. as amended by R. identifying its counterparty/ies and disclosing the terms. 9343.gov.ph SEDIII-SPV@bsp. NPL and ROPA under R.gov.12. it is preferable that the list be submitted also in soft copy. For this purpose. 9182 may qualify for the COE. Although no specific form is prescribed. conditions and all material commitments related to the transaction. No.gov.A. a. An application for eligibility of specific NPAs shall be filed in writing (hard copy) by the selling QB with the BSP through the appropriate department of the SES for each proposed transfer of asset/s.ph For applications involving ten (10) NPA accounts or less. 4396Q) The following procedures shall govern the transfer/sale of non-performing assets (NPAs) to a Special Purpose Vehicle (SPV) or to an individual that involves a single family residential unit. For applications involving more than ten (10) NPA accounts. Q-28 06. Only NPAs included in the masterlist that meet the definition of NPA. The list to be submitted in hard copy would be ideal for the sale/transfer of NPAs that involve one (1) promissory note and/or one (1) asset item per account. d.A. a QB shall coordinate with the BSP through the Supervisory Data Center (SDC) and the appropriate department of the SES to develop a reconciled and finalized master list of its eligible NPAs. provided all the necessary information shown in the prescribed data structure that are relevant to each NPL or ROPA to be transferred/sold will be indicated. for the purpose of obtaining the Certificate of Eligibility (COE) which is required to avail of the incentives provided under R. g. or by the country head. The individual shall indicate in his application the previous COE issued for the NPA he had acquired and the name. Items (3) and (4) above shall not apply if the NPL has become a ROPA after 30 June 2002. (2) 1/100 of 1% of the book value of the NPL but not below P5.000 if the transfer is made to an SPV. as follows: (1) 1/100 of one percent (1%) of the book value of NPAs transferred or the transfer price. (As amended by M-2006-001 dated 11 May 2006) Manual of Regulations for Non-Bank Financial Institutions . In the case of dacion en pago by the borrower or a third party to a QB. the registered owner of the property and the QB. h. who is authorized by the board of directors. whichever is higher. but not below P25. the application for transfer/sale shall be submitted to the Deputy Governor.000 if the transfer involves a single family residential unit to an individual. a QB Q Regulations Appendix Q-28 . Q-28 06. (2) the proposed sale/transfer of said NPAs is under a true sale. An individual who intends to transfer/ sell an NPA that involves a single family residential unit he had acquired that is covered by a COE shall file an application for the another COE with the BSP through the QB from which the NPA was acquired. in the case of foreign banks. e.12. f.31 least senior vice president or equivalent. that: (1) the assets to be sold/transferred are NPAs as defined under the SPV Act of 2002. the application for COE on the NPL being settled shall be accompanied by a Deed of Dacion executed by the borrower. (3) P5. The appropriate department of the SES may conduct an on-site review of the NPLs and ROPAs proposed to be transferred/sold. After the on-site review. (3) the notification requirement to the borrowers has been complied with.Page 2 shall be charged a processing fee.APP. address and TIN of the transferee/buyer of the NPA. and (4) the maximum ninety (90)-day period for renegotiation and restructuring has been complied with.000 shall be collected by BSP upon issuance of the SPV Application Number by the BSP. An SPV that intends to transfer/sell to a third party an NPA that is covered by a COE previously issued by the BSP shall file an application for such transfer/sale with the SEC which shall issue the corresponding COE based on the data base of COEs maintained at the BSP. SES for approval and for the issuance of the corresponding COE. A processing fee of P5. the third party. Upon the issuance of the SPV Application Number by the BSP.000 in case of a dacion en pago arrangement by an individual or corporate borrower. building and equipment). on remaining assets. and (2) to apply the excess. if any. in which case the carrying amount of the NPA Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-28-a . so that they may be encouraged to maximize the sale of their NPAs even at substantial discounts: Provided. in addition to tax relief under the SPV Law. in addition to all other disclosures provided in this Appendix. The guidelines recognize that banks/FIs may need temporary regulatory relief. otherwise known as “The Special Purpose Vehicle (SPV) Act of 2002”. I. net of specific allowance for probable losses after booking the BSP recommended valuation reserve) over the proceeds received in the form of cash and/or financial instruments issued by the SPV represents an actual loss that should be charged to current period’s operations.12. and (4) Disclosure requirement on the selling bank/FI. The guidelines cover the following areas: (1) Derecognition of NPAs sold/ transferred to an SPV and initial recognition of financial instruments issued by the SPV to the selling bank/FI as partial or full settlement of the NPAs sold/transferred to the SPV. (3) Capital adequacy ratio (CAR) calculation. Provided: That the bank/FI shall disclose such fact.. 16 and 40 may nonetheless. Q-28-a 05. That in the interest of upholding full transparency and sustaining market discipline. particularly in the timing of recognition of losses. however.APP. be derecognized. any excess of the carrying amount of the NPA (i. a bank/FI may use any existing specific allowance for probable losses on NPA sold: (1) to cover any unbooked (specific/ general) allowance for probable losses. Derecognition of NPAs Sold and Initial Recognition of Financial Instruments Received A bank/FI should derecognize an NPA in accordance with the provisions of PAS 39 (for financial assets such as loans and securities) and PAS 16 and 40 (for nonfinancial assets such as land. (2) Subsequent measurement of the carrying amount of financial instruments issued by the SPV to the selling bank/FI.Page 1 . However.A. On derecognition.e.31 ACCOUNTING GUIDELINES ON THE SALE OF NON-PERFORMING ASSETS TO SPECIAL PURPOSE VEHICLES AND TO QUALIFIED INDIVIDUALS FOR HOUSING UNDER “THE SPECIAL PURPOSE VEHICLE (SPV) ACT OF 2002” (Appendix to Sec. banks/FIs that avail of such regulatory relief shall fully disclose its impact in all relevant financial reports. The sale/transfer of NPAs to SPV referred to in these guidelines shall be in the nature of a “true sale” pursuant to Section 13 of the SPV Law and its Implementing Rules and Regulations. 9182. No. A sale of NPA qualifying as a true sale pursuant to Section 13 of the SPV Law and its Implementing Rules and Regulations but not qualifying for derecognition under PASs 39. as additional (specific/general) allowance for probable losses. 4396Q) General Principles These guidelines set out alternative regulatory accounting treatment of the sale of non-performing assets (NPAs) by banks and other financial institutions (FIs) under BSP supervision to Special Purpose Vehicles (SPVs) and to qualified individuals for housing under R. including the creditworthiness of the issuer. be booked under “Deferred Charges” account which should be written down over the next ten (10) years based on the following schedule: End of Period Cumulative From Date of Write-down of Transaction Deferred Charges Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 5% 10% 15% 25% 35% 45% 55% 70% 85% 100% Provided. The excess of the carrying amount of the NPA over the cash proceeds or the face amounts of the financial instruments. a bank/FI should use the discount rate(s) equal to the prevailing rate of return for financial instruments having substantially the same terms and characteristics. II. The estimated recoverable amount is determined based on the net present value of expected future cash flows discounted at the current market rate of interest for a similar financial instrument. moreover. Subsequent Measurement of Financial Instruments Received (a) A bank/FI should assess at end of each fiscal year or more frequently whether there is any objective evidence or indication based on analysis of expected net cash inflows that the carrying amount of financial instruments issued by an SPV may be impaired. In case the face amounts of the financial instruments exceed the excess of the carrying amount of the NPA over the cash proceeds.e.Page 2 Banks/FIs shall book such financial instruments under the general ledger account “Unquoted Debt Securities Classified as Loans” for debt instruments or “Investments in Non-Marketable Equity Securities (INMES)” for equity instruments. A financial instrument is impaired if its carrying amount (i. whichever is lower. Consolidation of SPV with Bank/FI. In applying discounted cash flow analysis. The loss may. Manual of Regulations for Non-Bank Financial Institutions . (b) Alternatively.31 (which is compared with the proceeds received for purposes of determining the actual loss) shall be the gross amount of the NPA: Provided. net of specific allowance for probable loss) is greater than its estimated recoverable amount. The carrying amount of the NPA shall be initially assumed to be the NPA’s fair value. Q Regulations Appendix Q-28-a . Even if the sale of NPAs to SPVs qualifies for derecognition. That the use of such existing specific allowance for probable losses on the NPA sold as provisions against remaining assets shall be properly disclosed. the estimated recoverable amount of the financial instruments may be determined based on an updated estimate of residual net present value (NPV) of the issuing SPV. That the staggered booking of actual loss on sale/transfer of the NPA shall be properly disclosed. shall then be the initial cost of financial instruments received. Q-28-a 05. the same shall be adjusted by setting up specific allowance for probable losses so that no gain shall be recognized from the transaction.12.. a bank/FI shall consolidate the SPV in the audited consolidated financial statements when the relationship between the bank/FI and the SPV indicates that the SPV is controlled by the bank/FI in accordance with the provisions of SIC (Standing Interpretations Committee)-12 Consolidation – Special Purpose Entities.APP. and the increase can be objectively related to an event occurring Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-28-a . if any.g. additional 15 percent (15%) each at end of Year 9 and Year 10. proceeds from the sale of collaterals and/or ROPAs. (c) In case of impairment.APP. a bank/FI should immediately book 70 percent (70%) at end of Year 8. a bank/FI may stagger the booking of such additional allowance for probable losses in such a way that it catches up and keeps pace with the original deferral schedule (e. direct costs to sell. The assumptions regarding the timing of sale. The applicable discount rate should be based on the implied stripped yield of the Treasury note or bond for the tenor plus an appropriate risk premium. and (2) The valuation of the independent appraiser is based on current market valuation of similar assets in the same locality as underlying collateral rather than other valuation methods such as replacement cost. which in no case shall exceed the contract price of the NPAs sold/transferred.. at the end of the fiscal year the sale/transfer of NPA occurred. That the staggered booking of impairment. administrative expenses.31 The estimated recoverable amount of the financial instrument shall be the present value of the excess of expected cash inflows (e. If in a subsequent period. if any. etc. administrative expenses. through the use of specific allowance for probable losses account that should be charged to current period’s operations. The fair market value of the collateral and/or ROPAs should under this method be considered only under the following conditions: (1) The appraisal was performed by an independent appraiser acceptable to the BSP. the direct cost to sell. principal and interest payments on senior obligations.. the carrying amount of the financial instrument should be reduced to its estimated recoverable amount. the estimated recoverable amount of the financial instrument increases exceeding its carrying amount. the bank/FI should review the financial instruments for future impairment in subsequent financial reporting date.g. If in a subsequent period. the estimated recoverable amount of the financial instrument decreases. upon remeasurement of financial instruments at end of the fiscal year the sale/transfer of the NPA occurred shall be properly disclosed. interest on the reinvestment of proceeds) over expected cash outflows (e. However.. However. After initially recognizing an impairment loss.12.g. if the impairment occurred in Year 8. reinvestments rate and current market rate should be disclosed in sufficient detail in the audited financial statements. respectively): Provided. upon remeasurement of financial instruments shall be properly disclosed. the bank/FI should immediately book additional allowance for probable losses corresponding to the decrease. interest payments on the financial instruments). That the staggered booking of impairment. Q-28-a 05. and thereafter.Page 3 . such setting up of specific allowance for probable losses account may be booked on a staggered basis over the next ten (10) years based on the following schedule: End of Period From Date of Transaction Cumulative Booking of Allowance for Probable Losses Year 1 5% Year 2 10% Year 3 15% Year 4 25% Year 5 35% Year 6 45% Year 7 55% Year 8 70% Year 9 85% Year 10 100% Provided. A bank/FI may declare cash dividend on common and/or preferred stock notwithstanding deferred recognition of loss duly authorized by the BSP. Q-28-a 05.12. if any. Capital Adequacy Ratio (CAR) Calculation Banks/FIs may. The reversal should not result in a carrying amount of the financial instrument that exceeds what the cost would have been had the impairment not been recognized at the date the write-down of the financial instrument is reversed. III. etc. Disclosure Banks/FIs should disclose as ”Additional Information” in periodic reports submitted to the BSP. Illustrative accounting entries for derecognition of NPAs. on the remeasurement of financial instruments.Page 4 5% 10% 15% 25% 35% 45% 55% 70% 85% 100% Provided. including the timing of the sale. In addition. (The pro-forma disclosure requirements on the staggered recognition of actual loss on sale/transfer of NPAs and/or impairment. the staggered recognition of actual loss on sale/transfer of NPAs” and/ or impairment. the direct cost to sell.APP. current market rate. banks/FIs which receive financial instruments issued by the SPVs as partial or full settlement of the NPAs transferred to the SPVs should disclose in the audited financial statements the method used and the significant assumptions applied in estimating the recoverable amount of the financial instruments. That no cash dividend on common stock and/or preferred stock shall be declared by the bank/FI while the staggered recognition of actual loss on sale/transfer of NPA and/or impairment. 4116Q.31 after the write-down.) Manual of Regulations for Non-Bank Financial Institutions . IV. and (2)impairment. the write-down of the financial instruments should be reversed by adjusting the specific allowance for probable losses account. The amount of the reversal should be included in the profit for the period. as well as in published reports and audited financial statements and all relevant financial reports the specific allowance for probable losses on NPAs sold used as provisions against remaining assets. on the remeasurement of financial instruments are shown in Annex Q-28-a-2. if any. if any. The financial instruments received by the selling bank/FI shall be risk weighted in accordance with Sec. administrative expenses. reinvestment rate. likewise stagger over a period of seven (7) years the recognition of: (1) actual loss on sale/transfer of NPAs. in accordance with the following schedule: End of Period From Date of Transaction Cumulative Recognition of Losses/Impairment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Q Regulations Appendix Q-28-a . on the remeasurement of financial instruments at end of the first fiscal year following the sale/transfer of NPA exist. and subsequent measurement of the carrying amount of the financial instrument are in Annex Q-28-a-1. initial recognition of financial instruments issued by the SPV. upon remeasurement of financial instruments. for purposes of calculating capital adequacy ratio (CAR). if any. 100) (30. 90) (30. 2 Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the cash proceeds. Part Part Cash. 1 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-28-a .Page 5 .31 Annex Q-28-a-1 ILLUSTRATIVE ACCOUNTING ENTRIES TO RECORD SALE OF NPAs TO SPV UNDER THE SPV LAW OF 2002 UNDER DEFERRED RECOGNITION OF LOSS/IMPAIRMENT OF FINANCIAL INSTRUMENTS Mode of Payment (Cash. Financial Instruments) Cash Only (30. Part Instruments Financial Financial Financial Only Instruments 1 Instruments2 Instruments (0.APP. Part Part Cash. gross Allowance for probable losses Loans/ROPAs. net Cash payment received Financial instruments received Unbooked valuation reserves on remaining assets 120 20 120 20 120 20 120 20 120 20 100 30 0 100 0 120 100 30 100 100 30 90 100 30 70 15 15 15 15 15 --------------------------------------------------------------------------------------------------------------------- Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash proceeds. 70) Assumptions: Loans/ROPAs. Q-28-a 05.12. 120) (30. 0) Financial Part Cash. Q-28-a 05. 1 Q Regulations Appendix Q-28-a . 70) Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 1 Allowance for Probable Losses – NPAs sold Allowance For Probable Losses . 4 Provision for Credit Losses – Unquoted Debt Securitues Classified as Loans/INMES Allowance for Credit Losses – Unquoted Debt Securities Classified as Loans/INMES 0 xxx 0 xxx xxx xxx xxx xxx xxx To record annual build up of allowance for credit losses on financial instruments based on schedule of staggered booking of allowance for credit losses. 0) (30. if any. and deferred recognition of loss. Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash proceeds. receipt of cash and/or financial instruments. 3 Amortization – Deferred Charges xxx xxx Deferred Charges 0 0 0 xxx 0 0 xxx 0 To record annual write down of deferred charges based on schedule of staggered booking of losses. Part Cash. 2 Cash Unquoted Debt Securities Classified as Loans/INMES Deferred Charges Loans/ROPAs Allowance for Credit Losses Unquoted Debt Securities Classified as Loans/INMES 30 0 30 30 30 0 120 100 90 70 90 120 0 0 120 0 0 120 10 0 120 0 20 120 0 To record the sale of NPAs.20 Remaining Assets (For unbooked provisions) (As additional provisions) 20 15 5 20 15 5 20 20 15 5 15 5 15 5 To record the reclassification of existing specific allowance for credit losses on NPAs sold as provisions against remaining assets. 90) (0. 100) (30. Part Cash. 2 Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the cash proceeds.31 Accounting Entries Part Cash.APP.Page 6 Manual of Regulations for Non-Bank Financial Institutions .12. Part Part Financial Part Cash Only Instruments Financial Financial Financial Instruments 1 Instruments 2 Instruments Only (30. 120) (30. Q-28-a 05.31 Annex Q-28-a-2 PRO-FORMA DISCLOSURE REQUIREMENT A. gross Less: Deferred charges written down Carrying amount of deferred charges xxx xxx xxx xxx xxx xxx xxx xxx xxx Total Additional Information: NPAs sold. Statement of Condition Amount Particulars Qualified for derecognition Under PFRS/PAS Not Qualified for derecognition Under PFRS/PAS xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Cash received xxx xxx xxx Financial instruments received. carrying amount of financial instruments received xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Deferred charges.Page 7 .APP. gross Allowance for credit losses (specific) on NPAs sold Allowance for credit losses (specific) on NPAs sold applied to: Unbooked allowance for credit losses: Specific General Additional allowance for credit losses Specific General Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-28-a .12. gross Less: Allowance for credit losses (specific) Carrying amount of financial instruments received Less: Unbooked allowance for credit losses (specific) Adj. 12.31 B. if applicable Net deductions xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Net income/(loss) after income tax (without regulatory relief) Q Regulations Appendix Q-28-a . Statement of Income and Expenses Amount Particulars Qualified for derecognition Under PFRS/PAS Not Qualified for derecognition Under PFRS/PAS Total Additional Information: Net income/(loss) after income tax (with regulatory relief) xxx Less: Deferred charges not yet written down Unbooked allowance for credit losses (specific) on financial instruments received Total deduction less: Deferred tax liability.Page 8 Manual of Regulations for Non-Bank Financial Institutions . Q-28-a 05.APP. 2. Filing of Applications with the SEC for Establishing an SPV Under Section 6 of R. on behalf of the borrower. 5. Q-28b 08. to the Fl. Deed of Dation. The dation in payment (dacion en pago) of the NPL by the borrower to the FI.g.e. 9182. Deed of Assignment. Asset Sale and Purchase Agreement.A.12. 9343 (Appendix to Sec. No.A. No.A.APP. The transfer of the NPL by the FI to an SPV. (M-2007 -013 dated 11 May 2007 as amended by M-2008-014 dated 17 March 2008) The Monetary Board authorized the SES to accept applications for Certificate of Eligibility (COE) until 13 June 2008.. or up to 30 days after the 14 May 2008 deadline. Sale/Transfer of NPAs Entitled to Tax Exemptions and Fee Privileges The following transactions enumerated as Items “1” to “6” of Section 15 of the IRR of the SPV Law are entitled to the tax exemptions and fee privileges under the same Section only if such transactions occur within two (2) years from the effectivity of the amendatory Act or from 14 May 2006 to 14 May 2008:1 1. 1 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-28b .Page 1 . B. 9182. applications for the establishment and registration of an SPV shall be filed with the SEC within eighteen (18) months from the effectivity of the amendatory Act (i. For purposes of determining whether a transaction occurred within the two (2)-year period or from 14 May 2006 to 14 May 2008.A. The transfer of the ROPA (single family residential unit) by the FI to an individual.) should be notarized within the said two (2)-year period. etc. The transfer of the ROPA by the FI to an SPV. 9343. ALSO KNOWN AS THE “SPECIAL PURPOSE VEHICLE ACT”. NO. NO. relevant documents to support the application (e. 4396Q) A. 3. as amended by R. The transfer of the NPL (secured by a real estate mortgage on a residential unit) by the FI to an individual. 4. and 6. The dation in payment (dacion en pago) of the NPL by a third party.31 SIGNIFICANT TIMELINES RELATIVE TO THE IMPLEMENTATION OF R. up to 14 November 2007).. AS AMENDED BY R. Q-29 07.2 Under Documents against Acceptances (DA)/Open Account (OA) arrangements a.1.. government securities.e.1 Under Letters of Credit (LC) a. except for the creditor’s billing statement which need not be submitted.2 NDFs The outstanding eligible obligation. Accepted draft. A copy of the creditor’s billing statement may be submitted only on or before the maturity date of the contract.2 Inward Foreign Investments The unremitted amount of sales/ maturity proceeds due for repatriation to non-resident investors pertaining to BSP registered investments in the following instruments issued by a Philippine resident: a. i. In addition to the above requirements. electronic copy or facsimile of original.a" of Circular Letter dated 24 January 2002. 388.12. b. 388. 2. original documents* shall be presented on or before deal date to QBs. those that are registered with the BSP. * If copy is indicated. and (ii. and b. it (the importer) shall comply with the documentation requirements on sale of FX for trade transactions under existing regulations. 4603Q.1.APP. subject to the documentary requirements under Circular No.31 GUIDELINES AND MINIMUM DOCUMENTARY REQUIREMENTS FOR FOREIGN EXCHANGE (FX) FORWARD AND SWAP TRANSACTIONS (Appendix to Subsecs.1. The amount of the forward contract shall not exceed the outstanding amount of the underlying obligation during the term of the contract. 1.. Unless otherwise indicated. Copy of LC opened. the QB shall require the customer to submit a Letter of Undertaking that: (i. shares of stock listed in the Philippine Stock Exchange (PSE). including interests and fees thereon as indicated in the BSP registration letter may be covered by a NDF.3 Direct Remittance Original shipping documents indicated in Item "II. Certification of reporting QB on the details of DA/OA under Schedule 10 (Import Letters of Credits Opened and DA/OA Import Availments and Extensions) of FX Form 1 (Consolidated Report on Foreign Exchange Assets and Liabilities). FORWARD SALE OF FX – TRADE 1. 388 dated 26 May 2003 with the following additional guidelines for foreign currency loans and investments. those that are registered with the BSP registration letter. NON-TRADE TRANSACTIONS Only non-trade transactions with specific due dates shall be eligible for forward contracts. may be covered by a deliverable forward subject to the documentary requirements under Circular No. A. 2.1.) No double hedging has been obtained by the customer for the covered transactions.1 Foreign Currency Loans owed to non-residents or AABs 2.Page 1 . i. and b. 2. or commercial invoice/Bill of Lading 1. and shall be subject to the same documentation requirements under Circular No. it shall mean photocopy.1. FORWARD SALE OF FX TO COVER OBLIGATIONS – DELIVERABLE AND NON-DELIVERABLE 1.e. 2. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-29 .1 Trade transactions 1.) Before or at maturity date of the forward contract.1 Deliverable Forwards The maturing portion of the outstanding eligible obligation. Copy of commercial invoice.16 – 4603Q.18) The following is a list of minimum documentary requirements for FX forward and swap transactions. stock certificate.a" above. FORWARD SALE OF FX TO COVER EXPOSURES– DELIVERABLE AND NON-DELIVERABLE 1. Hedging for permanently assigned capital of Philippine branches of foreign banks/ firms is not allowed. money market instruments. Documents Against Payment (DP) or Direct Remittance (DR) Any of the following where delivery or shipment shall be made not later than one (1) year from deal date: a.g.12. and b. Accepted Proforma Invoice d.) At maturity of the forward contract. as amended. peso time deposits with a minimum tenor of ninety (90) days may be covered by FX forward contracts subject to the presentation of the original BSRD on or before deal date. which date coincides with the settlement date of the PSE transaction. or Sales Contract/ Purchase Order 1.) No double hedging has been obtained by the customer for the covered transactions. or confirmation of sale. FX SWAP TRANSACTIONS 1.Page 2 (i. or certificate of investment in money market instruments. counterparties must be limited to those that are manifestly eligible to engage in FX forwards as part of the normal course of their operations and which satisfy the QB’s suitability and eligibility rules for such transactions. 388. for Item "2. FORWARD PURCHASE OF FX Such FX forward contracts shall be subject to the QB’s “Know Your Customer” policy and existing regulations on anti-money laudering. or broker’s buy invoice. FX SALE (first leg)/FORWARD FX PURCHASE (second leg) The same minimum documentary requirements for sale of FX under BSP Manual of Regulations for Non-Bank Financial Institutions . In addition.2 Under DA/OA.31 c. original BSRD or BSRD Letter-Advice. and d.. shall be presented on or before maturity date of the FX forward contract. Sales proceeds of BSP-registered investments in shares of stock that are not listed in the PSE may be covered by a deliverable FX forward contract only if determined to be outstanding as of the deal date for the contract and payable on a specific future date as may be indicated in the Contract To Sell/Deed of Absolute Sale and subject to the same documentary requirements under Circular No. However. or certificate of peso time deposits). NON-TRADE (NON-DELIVERABLE) The outstanding balance of BSPregistered foreign investments without specific repatriation date. together with the broker’s sales invoice. TRADE (DELIVERABLE AND NONDELIVERABLE) 1. subject to prior BSP approval and if already with BSRD presentation of the covering BSRD and the proof that the investment still exists (e. 2. the QB shall require the customer to submit a Letter of Undertaking that: Q Regulations Appendix Q-29 . Shipment/Import Advice of the Supplier In addition to the above requirements. Sales Contract b. based on its market/ book value on deal date.APP. Confirmed Purchase Order c. Q-29 07. D. Copy of LC opened. C.1 Under LC a. and (ii. Proforma Invoice. it shall comply with the documentation requirements on the sale of FX for trade transactions under CircularLetter dated 24 January 2002.2. appearing in the covering BSRD may only be covered by an NDF contract. B. and Circular-Letter dated 24 January 2002.Page 3 . as amended. The second leg of the swap transaction will be subject to the swap contract between the counterparties. (As amended by Circular No. 591 dated 15 October 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-29 . for trade transactions. FX PURCHASE (first leg)/FORWARD FX SALE (second leg) The first leg of the swap will be subject to the QB’s “Know Your Customer” policy and existing regulations on anti-money laundering.12. 2. Swap contracts of this type intended to fund peso loans to be extended by nonresidents in favor of residents shall require prior BSP approval. Q-29 07. 388 for non-trade transactions.31 Circular No. shall be presented on or before deal date.APP. trust entities or NSSLAs which have engaged their respective external auditors for a consecutive period of five (5) years or more as of 26 November 2003 (effectivity of Circular No.APP. No external auditor may be engaged by a bank. trust entity or NSSLA. and c.Page 1 . 4. 3. Information systems design. auditor-incharge and members of the audit team must adhere to the highest standards of professional conduct and shall carry out services in accordance with relevant ethical and technical standards. trust entity or NSSLA. such as the Generally Accepted Auditing Standards (GAAS) and the Code of Professional Ethics for CPAs. QB. The external auditor must not be currently engaged nor was engaged during the preceding year in providing the following services to the bank. its subsidiaries and affiliates. That the rotation of the lead and concurring partner shall have an interval of at least two (2) years. further. its subsidiaries and affiliates at the time of signing the engagement and during the engagement. trust entity or NSSLA if he or any member of his immediate family has or has committed to acquire any direct or indirect financial interest in the bank. The external auditor to be hired shall also be in-charge of the audit of the entity’s subsidiaries and affiliates engaged in allied activities: Provided. 5. QB. The external auditor for a UB or KB must have at least twenty (20) existing corporate clients with resources of at least P50 million each and at least one (1) existing client UB or KB in the regular audit or in lieu thereof. Internal audit functions. That the external auditor shall be changed or the lead and concurring partner shall be rotated every five (5) years or earlier: Provided. b. or if his independence is considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs. QBs. associates and the auditor-in-charge of the engagement and members of their immediate family. The following are the selection requirements for external auditors: 1. 410) shall have a one (1) year period from said date within which to either change their external auditors or rotate the lead and/or concurring partner. Banks. 4180Q) A. QB.12. APPOINTMENT AND THE REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF QUASI-BANKS (Appendix to Sec. In the case of partnership. The external auditor. In the case of a partnership. The external auditor and the members of the audit team do not have/ shall not have outstanding loans or any credit accommodations (except credit card obligations which are normally available to other credit card holders and fully secured auto loans and housing loans which are not past due) with the bank. The external auditor should have the following track record in conducting external audits: a. Such other services which could affect his independence as may be determined by the Monetary Board. this prohibition shall apply to the partners and the auditorin-charge of the engagement. trust entity or NSSLA its subsidiaries and affiliates: a. the external auditor or Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-30 . 2. QB. Q-30 06. QBs.31 GUIDELINES TO GOVERN THE SELECTION. GENERAL REQUIREMENTS Only external auditors included in the list of BSP selected external auditors shall be engaged by banks. this limitation shall apply to the partners. implementation and assessment. trust entities or NSSLAs for regular audit or special engagements. APP. trust entity. chief financial officer. b. trust entity. KB. QB. but shall not be limited to. QBs. trust entity or national Coop Bank in the regular audit or in lieu thereof. QB. local Coop Bank and NSSLA.31 the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of UBs or KBs. QB. Q-30 06. audit scope and detailed work program. QB. pre-audit analysis. An undertaking: a. associates. b. That the external auditor shall not accept an audit engagement with a bank. That the external auditor. TB. NSSLA. partners. The external auditor must undertake to keep for at least five (5) years all audit or review working papers in sufficient detail to support the conclusions in the audit report which shall be made available to the BSP upon request. The external auditor for an RB or local Coop Bank must have at least three (3) years track record in conducting external audit: Provided. QB. trust entity.12.0 million each and at least one (1) existing client TB. The external auditor for a TB. c. A bank. QB. QB. That an external auditor who has been selected by the BSP to audit a UB. its subsidiaries and affiliates where they have outstanding loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans which are not past due). QB. APPLICATION AND PREQUALIFICATION REQUIREMENTS The application for BSP selection shall be signed by the external auditor or the managing partner. partners. QB. trust entity and national Coop bank is automatically qualified to audit an RB. trust entity or national Coop Bank. trust entity. controller. associates. 6. in case of partnership and shall be submitted to the appropriate department of the SES together with the following documents/information: 1.Page 2 B. auditor-in-charge of the engagement and the members of their immediate family shall not acquire any direct or indirect financial interest with a bank. its subsidiaries and affiliates as chief executive officer. Q Regulations Appendix Q-30 . and 7. QB. Working papers shall include. the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of TBs. associates and auditor-in-charge accept an audit engagement with a bank. auditor-in-charge and members of the audit team do not have nor shall apply for loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans) nor shall accept an audit engagement with a bank. That an external auditor who has been selected by the BSP to audit a UB or KB is automatically qualified to audit a TB. That the external auditor. and c. its subsidiaries and affiliates. trust entities or national Coop Banks: Provided. partners. NSSLA. NSSLA. Neither shall the external auditor. NSSLA. chief accounting officer or any position of equivalent rank. trust entity or NSSLA shall not engage the services of an external auditor whose partner or auditor-in-charge of audit engagement during the preceding year had been hired or employed by the bank. trust entity and national Coop Bank must have at least ten (10) existing corporate clients with resources of at least P25. NSSLA. trust entity. its subsidiaries and affiliates where he was engaged during the preceding year in providing the following services: Manual of Regulations for Non-Bank Financial Institutions . its subsidiaries and affiliates where they or any member of their immediate family have any direct or indirect financial interest and that their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs. Loans and other risk assets review and classification. in the event that the certification cannot be obtained because of the pendency of a case. This requirement shall not. g. the BSP may dispense with this requirement upon determination by the Monetary Board that the case involves purely legal question. trust entity or NSSLA and the external auditor where applicable. or does not. List of existing corporate clients with resources of at least P50.12. and 3. in any way. NSSLA. Updated PRC license (for individual auditors) and business license for the partnership. d.31 1. However. its subsidiaries and affiliates where an officer (i. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-30 . trust entity. Copy of the proposed engagement contract between the bank. That the external auditor and members of the audit team shall adhere to the highest standards of professional conduct and shall carry out their services in accordance with relevant ethical and technical standards of the accounting profession. but not limited to the following: 1.. d. Q-30 06. trust entity and national Coop Bank. which could affect his independence as may be determined by the Monetary Board from time to time. That the audit work shall include assessment of the audited institution’s compliance with BSP rules and regulations. 2. NSSLA. list of existing corporate clients with resources of at least P25. Information systems design. f. b. and h. Certification from PRC that the external auditor. previous conviction or any pending investigation. e. Internal audit functions. and e. Other documents/information: a. NSSLA. CAR. 410). and 2. controller. affect audit engagement existing as of 26 November 2003 (effectivity of Circular No. a notarized certification that the external auditor or the auditor-in-charge of the engagement has at least five (5) years experience in the regular audit of banks of appropriate category mentioning the banks they have audited. If the external auditor for a UB or KB has no existing UB or KB client. negate the auditor’s adherence to the highest standards of professional conduct nor degrade his integrity and objectivity. QB. That the lead or concurring partner and auditor-in-charge shall not accept employment with the bank. NSSLA and a local Coop Bank. trust entity. QB. chief executive officer. That the external auditor shall keep all audit or review working papers for at least five (5) years in sufficient detail to support the conclusions in the audit report. such as. Such other services. 2.APP. for a TB. lead partner. chief accounting officer or other senior officer of equivalent rank) had been a partner of the external auditor or had worked for the audit firm and had been the auditor-in-charge of the audit engagement of said entities during the year immediately preceding the engagement. has no existing client TB or national Coop Bank.e. and list of existing clients and/or details of three (3) years track record in external audit for external auditors of an RB.Page 3 . implementation and assessment.0 million each. auditor-in-charge and members of the audit team have no derogatory information. That the external auditor shall not accept an audit engagement with a bank. and national Coop Bank. its subsidiaries and affiliates being audited during the engagement period and within a period of one (1) year after the audit engagement.0 million each for external auditor of a UB or KB. QB. concurring partner. c. however. QB. chief financial officer. QB. trust entity. and the external auditor for a TB. REQUIRED REPORTS 1. In case there are no matters to report (e. the following cases: a. trust entity. QB. Loans and other risk assets review and classification. c. except in circumstances where the external auditor believes that the entity’s management is involved in fraudulent conduct. QB. understood that the accountability of an external auditor is based on matters within the normal coverage of an audit conducted in accordance with generally accepted auditing standards. The management of the bank. trust entity or NSSLA. Power to appoint or remove the majority of the members of the board of directors or equivalent governing body. b. Manual of Regulations for Non-Bank Financial Institutions . and b. trust entity. controlled or held with power to vote by a bank. 3. but not limited to: 1. DEFINITION OF TERMS For purposes of these guidelines. Affiliate. b. controlled or held with power to vote by a bank. Control may also exist even when ownership is one half or less of the voting power of an enterprise when there is: a. the external auditor must report to the BSP within thirty (30) calendar days after discovery. NSSLA.APP. Power to govern the financial and operating policies of the enterprise under a statute or an agreement. A corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. 2. etc. c. The management of the bank. NSSLA. Q-30 06. CAR. To enable the BSP to take timely and appropriate remedial action. NSSLA and a juridical person that is under common control with the bank. Exists when the parent owns directly or indirectly more than one half of the voting power of an enterprise unless. trust entity. QB.Page 4 audit findings. D. A corporation. its subsidiaries and affiliates shall be given the opportunity to be present in the discussions between the BSP and the external auditor regarding the Q Regulations Appendix Q-30 . Subsidiary. trust entity or NSSLA. dishonesty. Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit). however. QB.) the external auditor shall submit directly to the BSP within fifteen (15) calendar days after the closing of the audit engagement a notarized certification that there is none to report. Findings on matters of corporate governance that may require urgent action by the BSP. breach of laws. in exceptional circumstance. Discovery of a material breach of laws or BSP rules and regulations such as. 2. and 2. Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital. Power over more than one-half of the voting rights by virtue of an agreement with other stockholders.31 C. fraud. not more than fifty percent (50%) but not less than ten percent (10%) of the outstanding voting stock of which is directly or indirectly owned.12. it can be clearly demonstrated that such ownership does not constitute control. 3. Control. It is. its subsidiaries and affiliates shall be informed of the adverse findings and the external auditor’s report to the BSP shall include its explanation and/ or corrective action. the following terms shall be defined as follows: 1.g. The external auditor shall report directly to the BSP within fifteen (15) calendar days the occurrence of the following: a. QB. Termination or resignation as external auditor and stating the reason therefore. however. shall submit the audit engagement contract between them. DELISTING OF EXTERNAL AUDITORS 1. QB. Refers to the team leader of the audit engagement. Lead Partner. The BSP. QBs.APP. Also referred to as the engagement partner/partner-in-charge/ managing partner who is responsible for signing the audit report on the consolidated financial statements of the audit client. QB. Grounds for delisting External auditors may be delisted from the list of BSP selected external auditor for the bank. The BSP will circularize to all banks. at the expense of the bank. trust entity or NSSLA for violation of. inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. or NSSLA shall be responsible for keeping the auditor fully informed of existing and subsequent changes to prudential. QBs. 7. shall be allowed. trust entities. Q-30 06. or NSSLAs. 2. NSSLA. Power to cast the majority votes at meetings of the board of directors or equivalent governing body. 6. the individual audit report of any entity whose financial statements form part of the consolidated financial statements. or e. H. The partner who is responsible for reviewing the audit report. Associate. and where relevant. regulatory and statutory requirements of the BSP and that both parties shall comply with said requirements.Page 5 . Concurring Partner. 5. Auditor-in-charge. 4. SPECIFIC REVIEW When warranted by supervisory concern. their subsidiaries and affiliates and the external auditor to the appropriate department of the SES within fifteen (15) calendar days from signing thereof. Said contract shall include the following provisions: 1.31 d. G. trust entities. and 3. or non-compliance with any provision of these guidelines or in case of dissolution of the audit firm except when said dissolution was solely for the purpose of admitting new partner/s and the new partner/s have complied with the requirements of these guidelines. shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks. QBs. F. the Monetary Board may. Any other arrangement similar to any of the above. trust entity. for regular audit or special engagements. That both parties shall comply with all of the requirements under these guidelines. its subsidiaries and affiliates require the external auditor to undertake a specific review of a particular aspect of the operations of these institutions. Any director. That disclosure of information by the external auditor to the BSP as required under Items "C" and "F" hereof. That the bank. officer. trust entities and NSSLAs the list of selected external auditors once a year. within thirty (30) calendar days after the conclusion of said review. trust entity. E.12. manager or any person occupying a similar status or performing similar functions in the audit firm including employees performing supervisory role in the auditing process. The report shall be submitted to the BSP and the audited institution simultaneously. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-30 . AUDIT ENGAGEMENT CONTRACT Banks. QB. Partner. All partners including those not performing audit engagements. and NSSLAs. INCLUSION IN BSP LIST In case of partnership. 8. to conduct. Q-30 06. QB. Delisted external auditor may re-apply for BSP selection after the period prescribed by the Monetary Board. 8791. I.Page 6 Banking Law of 2000” the Monetary Board may also direct the board of directors of a bank. trust entity or NSSLA to review the internal audit and the internal control system of the concerned entity and to submit a report of such audit to the Monetary Board within thirty (30) calendar days after the conclusion thereof. 529 dated 11 May 2006) Manual of Regulations for Non-Bank Financial Institutions .31 2. either personally or by a committee created by the board. NSSLA or the individual members thereof. an annual balance sheet audit of the bank. No. otherwise known as “The General Q Regulations Appendix Q-30 . (As amended by Circular No. AUDIT BY THE BOARD OF DIRECTORS Pursuant to Section 58 of R.A. Procedure for delisting An external auditor shall only be delisted upon prior notice to him and after giving him the opportunity to be heard and defend himself by presenting witnesses/ evidence in his favor.12. trust entity. QB.APP. The articles of incorporation or governing charter of the institution shall include among its powers or purposes. The bank’s operation during the preceding calendar year and for the period immediately preceding the date of application has been profitable. governmentowned or controlled corporation. b.0 million or such amounts as may be required by the Monetary Board in the future. i. It must be a bank or NBFI under BSP supervision. (2) The creation of a trust committee. orders or instructions of the Monetary Board and/ or BSP Management in the last two preceding examinations prior to the date of application.APP. d. acting as trustee or administering any trust or holding property in trust or on deposit for the use. f. (3) the ceilings on credit accommodations to DOSRI. and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units. g. office or unit which shall conduct the trust and other fiduciary business of the institution. officers and staff within the organization.31 QUALIFICATION REQUIREMENTS FOR A BANK/NBFI APPLYING FOR ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR BOND ISSUED BY ANY MUNICIPALITY. (2) attendance by every member of the board of directors in a special seminar for board of directors conducted or accredited by the BSP. The by-laws of the institution shall include among others.12. the appointment of a trust officer and subordinate officers of the trust department. h. as follows: UBs and KBs The amount required under existing regulations or such amount as may be required by the Monetary Board in the future Branches of Foreign Banks The amount required under existing regulations Thrift Banks P650 million or such amounts as may be required by the Monetary Board in the future NBFIs Adjusted capital of at least P300.16) A bank/NBFI applying for accreditation to act as trustee on any mortgage or bond issued by any municipality. particularly on the following: (1) election of at least two (2) independent directors. provisions on the following: (1) The organization plan or structure of the department. (4) liquidity floor requirements for government deposits.Page 1 . It has generally complied with banking laws. c. It must have complied with the minimum capital accounts required under existing regulations. or any body politic must comply with the following requirements: a. OR ANY BODY POLITIC (Appendix to Subsec. 4409Q. e. rules and regulations. It must have a license to engage in trust and other fiduciary business. Q-31 05. Its risk-based capital adequacy ratio is not lower than twelve percent (12%) at the time of filing the application. GOVERNMENT-OWNED OR CONTROLLED CORPORATION. or in behalf of others. It has not incurred net weekly reserve deficiencies during the eight (8) weeks period immediately preceding the date of application. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-31 . It is a member of the PDIC in good standing (for banks only). j. k. adequate risk measurement systems. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. It has established a risk management system appropriate to its operations characterized by clear delineation of Q Regulations Appendix Q-31 . effective internal controls and complete. It maintains adequate provisions for probable losses commensurate to the quality of its assets portfolio but not lower than the required valuation reserves as determined by the BSP. It does not have float items outstanding for more than sixty (60) calendar days in the “Due From/To Head Office/Branches/Other Offices” accounts and the “Due from Bangko Sentral” account exceeding one percent (1%) of the total resources as of date of application. appropriately structured risk limits.Page 2 responsibility for risk management. Compliance with the foregoing as well as with other requirements under existing regulations shall be maintained up to the time the trust license is granted.APP. and n. timely and efficient risk reporting system.12. l. It has a CAMELS Composite Rating of at least "3" in the last regular examination with management rating of not lower than "3". Manual of Regulations for Non-Bank Financial Institutions . m. and (6) investment in bank premises and other fixed assets.31 (5) single borrower’s loan limit. Q-31 05. In addition to the trust agreement or indenture required under Subsec. and method of valuing and accounting of CTF assets and each participation in the fund. g. 4409Q. frequency. j.2 and 4409Q. administer and maintain one (1) or more CTFs. and k. h. however. Manner in which the plan is to be operated. Liability clause of the trustee. including the character and kind of investments which may be purchased. 4410Q) 2. Schedule of fees and commissions which shall be uniformly applied to all participants in a fund and which shall not be changed between valuation dates. Investment powers of the trustee with respect to the plan. 4410Q. Title of the plan.1) 3. Detailed information on the basis. The provisions of the plan shall control all participations in the fund and the rights and benefits of all parties in interest.31 RULES AND REGULATIONS ON COMMON TRUST FUNDS1 (Appendix to Sec. a list which shall be updated quarterly of prospective and/or outstanding investment outlets may be made available by the trustee for the review of all CTF clients. c. That participants in the fund shall be -------------------------------------------------------------------------------------------------------- The rules and regulations on common trust funds (CTFs) were previously under Sec.12. Allocation. Establishment of common trust funds. d.APP.6 and to the following regulations. Q-32 05. e. 4410Q) 1. each CTF shall be established. apportionment and distribution dates of income. 4409Q. i. or like terms. Minimum documentary requirements for common trust funds.1. f. The administration of CTFs shall be subject to the provisions of Subsecs. Such other matters as may be necessary or proper to define clearly the rights of participants under the plan. (Subsec.3. The plan may be amended by resolution of the board of directors of the trustee: Provided. which shall be approved by the board of directors of the trustee and a copy submitted to the appropriate supervising and examining department (SED) of the BSP within thirty (30) business days prior to its implementation. profit and losses. The legal capacity of the institution administering a CTF shall be indicated in the plan and other related agreements or contracts as trustee of the fund and not in any other capacity such as fund manager. Terms and conditions governing the admission or withdrawal as well as expansion or contraction of participations in the plan including the minimum initial placement and account balance to be maintained by the trustor. Any trust company or investment house authorized to engage in trust business may establish. (Sec. Auditing and settlement of accounts of the trustee with respect to the plan. financial manager. administered and maintained in accordance with a written declaration of trust referred to as the plan. The plan shall make provisions on the following matters: a.1 up to 4409Q. 4410Q and the subsections enclosed in parentheses. As an alternative compliance with the required prior authority and disclosure under Subsecs. The UIT Funds regulations which are now in said section/subsections took effect on 01 October 2004 (effectivity of Circular 447 dated 03 September 2004). Basis upon which the plan may be terminated. b.Page 1 . 1 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-32 . 4409Q. bank deposits or other obligations issued or guaranteed by such person. By its inherent nature.2) 4. That amendments to the plan shall be submitted to the appropriate SED of the BSP within ten (10) business days from approval of the amendments by the board of directors. convert. a CTF shall be operated and accounted for in accordance with the following: a. Exposure limit of common trust fund to a single person or entity. further. That a trustee which administers Q Regulations Appendix Q-32 . The trustee shall have the exclusive management and control of each CTF administered by it. Q-32 05. The trustee shall have exclusive management and control of each CTF administered by it and the sole right at any time to sell. The trustee shall designate clearly in its records the trust accounts owning participation in the CTF and the extent of the interests of such account. a copy of the plan shall be furnished such person.5) 7. No trust account holding a participation in a CTF shall have or be deemed to have any ownership or interest in any particular asset or investment in the common trust fund but shall have only its proportionate beneficial interest in the fund as a whole. Manual of Regulations for Non-Bank Financial Institutions . The trustee shall not negotiate nor assign the trustor’s beneficial interest in the CTF without prior written consent of the trustor or beneficiary. exchange. 4410Q. reinvest. bank deposits or other obligations of any one (1) person. further. bonds. Trustee as participant in common trust funds.4) 6. the trustee may invest such funds in its own CTF only on a temporary basis in accordance with Subsec. (Subsec. (Subsec. if as a result of such investment the total amount invested in stocks. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as pooled fund accounting. transfer or otherwise change or dispose of the assets comprising the fund. 4410Q. however. firm or corporation. bonds.Page 2 funds representing employee benefit plans under trust or investment management may invest funds in the CTF: Provided. and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. 4410Q. A trustee administering a CTF shall not have any interest in such fund other than in its capacity as trustee of the CTF nor grant any loan on the security of a participation in such fund: Provided.5. b. exchange. and the sole right at any time to sell. No investment for a CTF shall be made in stocks.31 immediately notified of such amendments and shall be allowed to withdraw their participations if they are not in conformity with the amendments made: Provided. reinvest. (Subsec.12. A copy of the plan shall be available at the principal office of the trustee during regular office hours for inspection by any person having an interest in a trust whose funds are invested in the plan or by his authorized representative. Operating and accounting methodology. Management of common trust funds. firm or corporation shall aggregate to an amount in excess of fifteen percent (15%) of the market value of the CTF: Provided.3) 5. convert. Upon request. transfer or otherwise change or dispose of the assets comprising the fund. (Subsec. That this limitation shall not apply to investments in government securities or other evidences of indebtedness of the Republic of the Philippines and of the BSP.APP. 4410Q. That in the case of employee benefit plans under trust belonging to employees of entities other than that of the trustee. 4409Q. 12. Contributions to each fund by clients shall always be through participations in the fund. and e. The interest of each participant shall be determined by a formal method of participation valuation established in the written plan of the CTF. All such participations shall be pooled and invested as one (1) account (referred to as collective investments). 4410Q. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-32 . and no participation shall be admitted to or withdrawn from the fund except on the basis of such valuation.Page 3 . Custody of Securities. d.6) 8. Investments in securities of all existing CTFs shall be delivered to a BSP-accredited third party custodian not later than 31 October 2004. (Subsec.31 c.APP. Q-32 05. (Reserved) 9. The FAR shall be submitted by the bank/QB to the appropriate department of the SES not later than one hundred twenty calendar days after the close of the calendar year or fiscal year adopted by the bank/QB. ANNUAL AUDIT REPORT (AAR) AND REPORTS REQUIRED UNDER APPENDIX Q-30 (Appendix to Secs.Page 1 . Financial Audit Report 1. Certification by the external auditor on the following: a.31 CHECKLIST OF BSP REQUIREMENTS IN THE SUBMISSION OF FINANCIAL AUDIT REPORT (FAR). Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-33 . 2. in the case of foreign bank branches. auditor-in-charge of the engagement and the members of their immediate family do not have any direct or indirect financial interest with the bank/QB. The date when the FAR and certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the bank/QB were submitted to the board of directors or country head. The dates of commencement and termination of audit. together with the following: Deadline for submission Information/Data Required A. b.12. and c. 4172Q. Reconciliation statement for the differences in amounts between the audited and the submitted Balance Sheet and Income Statement for bank For submission together with the FAR not later than 120 calendar days after the close of the calendar year or fiscal year adopted by the bank. its subsidiaries and affiliates and that their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs. That the external auditor. 4172S and 4172N) The external auditor (Included in the List of BSP Selected External Auditors) shall start the audit not later than thirty (30) calendar days after the close of the calendar/fiscal year adopted by the bank. associates. AFS of banks/QBs with subsidiaries shall be presented side by side on a solo basis and on a consolidated basis (QBs and subsidiaries). Q-33 06.APP. partners. For submission together with the FAR not later than 120 calendar days after the close of the calendar year or fiscal year adopted by the bank. In case of foreign banks with branches in the Philippines. 5. Manual of Regulations for Non-Bank Financial Institutions . Q-33 06. and Within thirty (30) banking days after the receipt of the FAR and certification under oath by the board of directors. in lieu of the board resolution: a.APP. among other things. Copies of the board resolutions showing the: a. Action taken on the FAR and. regional or country) on the FAR Q Regulations Appendix Q-33 . In case no material weakness is noted to warrant the issuance of an LOC. A report by the country head on the action taken by management (head office. present and absent. among other things. 4. Within thirty (30) banking days after the receipt of the LOC by the board of directors. For submission together with the FAR not later than 120 calendar days after the close of the calendar year or fiscal year adopted by the bank. 3. on the certification under oath including the names of the directors.31 Information/Data Required Deadline for submission proper (regular and FCDU) and trust department. Action taken on the findings and recommendations in the LOC. LOC indicating the external auditor's findings and comments on the material weakness noted in the internal control and risk management systems and other aspects of operations.12. Note: Please see pro-forma comparative analysis (Annex Q-33-a). b. and the names of the directors present and absent. where applicable. Within thirty (30) calendar days after submission of the FAR. including copies of adjusting entries on the reconciling items.Page 2 Within thirty (30) banking days after the receipt of the FAR and certification under oath by the country head. a certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the bank shall be submitted by the external auditor. (1) Termination or resignation as external auditor and starting the reason therefore. on the applicable.Page 3 . but not limited to: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-33 . b. Certification of the external auditor on the date when the LOC was submitted to the board of directors or country head. the following cases: Within thirty (30) calendar days after discovery. All the required disclosures in the AFS provided under Subsec. Q-33 06. b. 4172Q.on certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the bank. 7. Within thirty (30) banking days after the receipt of the LOC by the country head.3 For submission together with the FAR not later than one hundred twenty calendar days after the close of the calendar year or fiscal year adopted by the bank. A report by the country head on the action taken by management (head office.APP. 8. regional or country) on the LOC. The external auditor shall report directly to the BSP the following: Within fifteen (15) calendar days after the occurrence/discovery. and (2) Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital. where applicable. 6. (2) Discovery of a material breach of laws or BSP rules and regulations such as. the external auditor must report to the BSP. a.12. Within thirty (30) banking days after the receipt of the LOC by the board of directors or country head.31 Information/Data Required Deadline for submission and. To enable the BSP to take timely and appropriate remedial action. (1) Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit). Reports required to be submitted by the external auditor under Appendix Q-30. including the names of the directors present and absent. a. 554 dated 22 December 2006 and 540 dated 09 August 2006) Q Regulations Appendix Q-33 . as well as on the comments and observations. among other things. (3) Findings on matters of corporate governance that may require urgent action by the BSP. Within thirty (30) banking days after receipt of the AAR by the board of directors. and c. c. breach of laws. 1. Reconciliation statement between the AFS in the AAR and the balance sheet and income statement of bank proper (Regular and FCDU) and trust department submitted to the BSP. including copies of adjusting entries on the reconciling items. AAR – For banks and other financial institutions under the concurrent jurisdiction of the BSP and COA. dishonesty. and (b) Loans and other risk assets review and classification. Other information that may be required by the BSP.. Within fifteen (15) calendar days after the closing of the audit engagement.31 Information/Data Required Deadline for submission (a) CAR. B. (As amended by Circular Nos. Copy of the AAR accompanied by the: Within thirty (30) banking days after receipt of the AAR by the board of directors. etc. In case there are no matters to report (e.g.) a notarized certification that there is none to report. b. 2.12.Page 4 Manual of Regulations for Non-Bank Financial Institutions . Q-33 06. Copy of the board resolution showing the action taken on the AAR. Certification by the institution concerned on the date of receipt of the AAR by the board of directors.APP. fraud. net Real and Other Properties Acquired (ROPA).12. Associates & Joint Ventures Bank Premises.APP.Page 5 . Q-33 06. net Interbank Loans Receivable Equity Investments in Subsidiaries. 554 dated 22 December 2006 and 540 dated 09 August 2006) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-33 .31 Annex Q-33-a Name of Financial Institution Comparison of Submitted Consolidated Balance Sheet and Income Statement and Audited Financial Statements (Parent and Subsidiaries) As of (end of calendar or fiscal year) (In Thousand Pesos) Submitted Audited Variance/ Report Report Discrepancy Cash and Other Cash Items Due from BSP Due from Other Banks Financial Assets Held for Trading (HFT) Held-to-Maturity (HTM) Financial Assets Available-for-Sale Financial Assets Loans and Receivables. Furniture. net Other Assets Due from Head Office/Branches/Agencies Abroad Total Assets ===== Deposit Liabilities Bills Payable Bonds Payable Unsecured Subordinated Debt (UnSD) Redeemable Preferred Shares Accrued Interest. Taxes and Other Expenses Other Liabilities Due to Head Office/Branches/Agencies Abroad Total Liabilities ===== Paid-in Capital Stock Additional Paid-In Capital Retained Earnings Assigned Capital Total Capital ===== Total Liabilities and Capital ===== Total Income Total Expenses Net Income before Income Tax Reasons for Discrepancy ==== ===== ====== ==== ===== ====== ==== ===== ====== ==== ===== ====== ===== ==== ===== ====== (As amended by Circular Nos. Fixtures and Equipment. 4410Q.7) Name of Unit Investment Trust Fund: For the Quarter ended: Net Asset Value.31 QUARTERLY INVESTMENT DISCLOSURE STATEMENT (Appendix to Subsec.Page 1 .g..APP. The investment objective of the Fund is to generate a steady stream of income by investing in a diversified portfolio of high-grade marketable securities) Administrative Details: Trust Fee: Minimum Investment: Holding Period: Participation/Redemption Conditions: Special Reimbursable Expenses. end of quarter: Net Asset Value Per Unit (NAVPu): Short Description: (e. The Fund is a peso denominated fixed-income fund.12. Q-34 05. if any: Outstanding Investments: The Fund has investments in the following: (may be in graph format showing weightings per investment type or class of security) Prospective Investments: The following names/securities are among the fund’s approved investment outlets where the Trustee intends to invest in depending on its availability or other market driven circumstances: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-34 . absence of buyers. the NAVpu may increase to make profit or decrease to incur loss. This is the possibility for an investor to experience losses due to the inability to sell or convert assets into cash immediately or in instances where conversion to cash is possible but at a loss. economic changes or other events that impact large portions of the market such as political events. These may be caused by different reasons such as trading in securities with small or few outstanding issues. Liquidity Risk.Page 1 . Investment in the UITF does not provide guaranteed returns even if invested in government securities and high-grade prime investment outlets.APP. Liquidity risk occurs when certain securities in the UITF portfolio may be difficult or impossible to sell at a particular time which may prevent the redemption of investment in UITF until its assets can be converted to cash. There are risks involved in investing in the UITFs because the value of your investment is based on the Net Asset Value per unit (NAVpu) of the Fund which uses a marked-to-market valuation and therefore may fluctuate daily. As investments in UITFs carry different degrees of risk. being market-to-market. lowering credit quality of the security. Your principal and earnings from investment in the Fund can be lost in whole or in part when the NAVpu at the time of redemption is lower than the NAVpu at the time of participation. This is the risk of losing value in the UITF portfolio in the event the borrower defaults on his obligation or in the case of a counterparty. Gains from investment is realized when the NAVpu at the time of redemption is higher than the NAVpu at the time of participation. The value of investments fluctuates over a given time period because of general market conditions. (Name of Trust Entity) is hereby informing you of the nature of the UITFs and the risks involved in investing therein. The purchase and sale of a debt instrument may result in profit or loss because the value of a debt instrument changes inversely with prevailing interest rates. It is the risk of the UITF to lose value due to a decline in securities prices. the Fund’s unit price may decline. The NAVpu is computed by dividing the Net Asset Value (NAV) of the Fund by the number of outstanding units. As the prices of bonds in a Fund adjust to a rise in interest rates. It is the exposure to the uncertain market value of a portfolio due to price fluctuations. Interest rate changes may affect the prices of fixed income securities inversely. is affected by changes in interest rates thereby affecting the value of fixed income investments such as bonds. it is necessary that before you participate/invest in these funds. Credit Risk/Default Risk. and consequently lowering the price (market/price risk) which contributes to the difficulty in selling such security. which may sometimes happen rapidly or unpredictably. natural calamities. bond prices rise. etc. This is the possibility for an investor to experience losses due to a borrower’s failure to pay principal and/or interest in a timely manner on instruments such as bonds. limited buy/sell activity or underdeveloped capital market. i. Your investment in any of the (Name of Trust Entity) UITFs exposes you to the various types of risks enumerated and defined hereunder: Interest Rate Risk..e. as interest rates rise. Fully understood the nature of the investment in UITFs and the extent of your exposure to risks.12. This is the possibility for an investor to experience losses due to changes in interest rates. The NAV is derived from the summation of the market value of the underlying securities of the Fund plus accrued interest income less liabilities and qualified expenses. or other forms of security which the borrower issued. and 3. Independently determined that the investment in the UITFs is appropriate for you. Q-34a 08. This inability of the borrower to make good on its financial obligations may have resulted from adverse changes in its financial condition thus. 2.. Even government securities which are the most liquid of fixed income securities may be subjected to liquidity risk particularly if a sizeable volume is involved. As a result. This is the possibility for an investor to experience losses due to changes in market prices of securities (e.g. bonds and equities). bond prices fall and when interest rates decline. Read this Risk disclosure Statement completely. The UITF portfolio. when it fails to deliver on the agreed trade. It also includes risk on a counterparty (a party the UITF Manager trades with) defaulting on a contract to deliver its obligation either in cash or securities. loans.31 Annex A (NAME OF TRUST ENTITY)-(TRUST BANKING GROUP/TRUST DEPARTMENT) Unit Investment Trust Funds RISK DISCLOSURE STATEMENT Prior to making an investment in any of the (Name of Trust Entity) Unit Investment Trust Funds (UITFs). you should have: 1. This decline in the value of the UITF Appendix Q-34a . Market/Price Risk. directors. In case of a foreign-currency denominated UITF or a peso denominated UITF allowed to invest in securities denominated in currencies other than its base currency. regulations. the UITFs NAVpu will be affected by a decline in value. e. I/we have completely read and fully understood this risk disclosure statement and the same was clearly explained to me/us by a (Name of Trust Entity) UIT marketing personnel before I/we affixed my/our signature/s herein. and political developments. subsidiaries. Reinvestment Risks. interest rates. Signature over Printed Name Date I acknowledge that I have (1) advised the client to read this Risk Disclosure Statement. It is the risk of the UITF to currency fluctuations when the value of investments in securities denominated in currencies other than the base currency of the UITF depreciates. affiliates or other related interests/parties. This is the possibility for an investor to experience losses arising from investments in securities issued by/in foreign countries due to the political. Likewise. it is the risk of the UITF to lose value when the base currency of the UITF appreciates. the plan rules. purchase of own-institution or affiliate obligations (stock.31 happens because the default/failure would make the price of the security go down and may make the security difficult to sell. terms and conditions governing my/our investment in the (Name of Trust Entity) UITFs.. brokerage commissions and other fees may be higher in foreign securities. delivery or recovery of investments. Government supervision and regulation of foreign stock exchanges. There are risks in foreign investments due to the possible internal and external conflicts. purchase of assets from or sales to own institution. 593 dated 08 January 2008) Appendix Q-34a . trading systems and brokers may be less than those in the Philippines.12. or purchases or sales between fiduciary/managed accounts. This is the risk associated with the possibility of having lower returns or earnings when maturing funds or the interest earnings of funds are reinvested.g. I/we hereby voluntarily and willingly agree to comply with any and all laws. Q-34a 08. The NAVpu of a peso-denominated UITF invested in foreign currency-denominated securities may decrease to incur loss when the peso appreciates. the UITF is also exposed to the following risks: Foreign Exhange Risk. Your participation in the UITFs may be further exposed to the risk of any actual or potential conflicts of interest in the handling of in-house or related party transactions by (Name of Trust Entity). officers. These transactions may include own-bank deposits. mortgages). As these happen. economic and social structures of such countries. The procedures and rules governing foreign transactions and custody of securities may also involve delays in payment. currency markets. currency devaluations. Other Risks. Country Risk. This is the possibility for an investor to experience losses due to fluctuations in foreign exchange rates. Investors in the UITF who redeem and realize their gains run the risk of reinvesting their funds in an alternative investment outlet with lower yields.APP. Signature over Printed Name/ Position of UIT Marketing Personnel Date (Circular No. economic performance. Conversely. (2) encouraged the client to ask questions on matters contained in this Risk Disclosure Statement. foreign ownership limitations and tax increases of the foreign country involved which are difficult to predict but must be taken into account in making such investments. and (3) fully explained the same to the client. the UITF manager is faced with the risk of not being able to find good or better alternative investment outlets as some of the securities in the fund matures.Page 2 Manual of Regulations for Non-Bank Financial Institutions . The exchange rates depend upon a variety of global and local factors. Similarly. A. Title. Q-35 05. in support of the complaint. No. full name and address of the complainant. Action on Complaint. Failure of the respondent to file an answer within the prescribed period shall be considered a waiver and the case shall be deemed submitted for resolution.Page 1 . d. 1. RULE II – COMPLAINT Sec. – The complaint shall be filed with or referred to the OSI. However. Preliminary Investigation. – These Rules shall be known as the BSP Rules of Procedure on Administrative Cases Involving Directors and Officers of Quasi-Banks and Trust Entities. c. Sec. No anonymous complaint shall be entertained. Where to file. Complaint. BSP. – These Rules shall apply to administrative cases filed with or referred to the Office of Special Investigation (OSI). The disqualification of directors and officers under Section 16 of R. in cases initiated by the appropriate department of the BSP. 3. Sec.12. full name and address of the person complained of. No. 2. the OSI shall determine whether there is a prima facie case against the respondent. 2.Upon determination that the complaint is sufficient in form and substance. except as may be provided under existing laws. Sec. 2. 7653 (The New Central Bank Act) and Sections 16 and 66 of R.31 BSP RULES OF PROCEDURE ON ADMINISTRATIVE CASES INVOLVING DIRECTORS AND OFFICERS OF QUASI-BANKS AND TRUST ENTITIES (Appendix to Sec. statement of the material facts. Contents of the Complaint . If a prima facie is Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-35 . b.The complaint shall be in writing and subscribed and sworn to by the complainant. specification of the charges.APP. RULE III – DETERMINATION OF PRIMA FACIE CASE AND PROSECUTION OF THE CASE Sec. a sworn answer. 3. 1. The complaint shall include copies of documents and affidavits of witnesses. 8791 (The General Banking Law of 2000). the OSI shall furnish the respondent with a copy thereof and require respondent to file within ten (10) days from receipt thereof. No. – The proceedings under these Rules shall be summary in nature and shall be conducted without necessarily adhering to the technical rules of procedure and evidence applicable to judicial trials. the complaint need not be under oath.A. Sec. Applicability. together with copies of documents and affidavits of witnesses. Proceedings under these Rules shall be confidential and shall not be subject to disclosure to third parties. copy furnished the complainant. . involving directors and officers of quasi-banks and trust entities pursuant to Section 37 of R. if any. 4150Q) RULE I – GENERAL PROVISIONS Section 1. statement as to whether or not a similar complaint has been filed with the BSP or any other public office.The complaint shall contain the ultimate facts of the case and shall include: a. 8791 shall continue to be covered by existing BSP rules and regulations. Nature of Proceedings. if any.A. e. – Upon receipt of the sworn answer of the respondent.. Sec. 3.– Upon receipt of the answer of respondent. which shall be composed of a Chairman and two (2) members. 4. the Hearing Panel or Hearing Officer shall issue an Order stating therein the matters taken up. Filing of the Formal Charge. with supporting documents relevant Q Regulations Appendix Q-35 . Failure of the respondent to comment. 6.The OSI shall file the formal charge before the SBCEG. Sec. Thereafter. The Order shall also direct the parties to simultaneously Manual of Regulations for Non-Bank Financial Institutions . a brief statement of material or relevant facts. Sec. Sec. 2. fails to submit an answer within the prescribed period. within ten (10) days from receipt thereof. BSP. despite due notice. who may be deputized for such purpose. under oath.12. The Hearing Panel or Hearing Officer shall issue an Order to that effect and direct the prosecution to present evidence ex parte. on the documents attached thereto shall be deemed an admission of the genuineness and due execution of said documents. under the direction and control of the OSI. RULE IV – PROCEEDING BEFORE THE HEARING PANEL OR HEARING OFFICER Sec. The respondent. However. the OSI shall file the formal charge with the Supervised Banks Complaints Evaluation Group (SBCEG). shall specifically admit or deny all the charges specified in the formal charge. Q-35 05. Sec.31 established during the preliminary investigation. The complainant may be assisted or represented by counsel. – The case shall be heard either by a Hearing Officer or a Hearing Panel. and shall require him to submit. 5. all of whom shall be designated by the SBCEG. Submission of Position Papers. Waiver. Sec. admissions made by the parties and issues for resolution. copy of which shall be furnished the prosecution. in the absence of a prima facie case. Formal Charge. the Hearing Panel or Hearing Officer shall submit a report on the basis of available evidence. – In the event that the respondent. Prosecution. the Hearing Panel or Hearing Officer shall set the case for preliminary conference for the parties to consider and agree on the admission or stipulation of facts and of documents.– After the preliminary conference. identification and marking of evidence and such other matters as may aid in the prompt and just resolution of the case. he shall be deemed to have waived his right to present evidence. – The formal charge shall contain the name of the respondent. a sworn answer. 4. – The OSI shall prosecute the case. the specific charge. Sec.Page 2 thereto. 3.APP. The SBCEG shall determine whether the case shall be heard either by a Hearing Panel or a Hearing Officer. 1. including the attachments. Sec. and the pertinent provisions of banking laws. the OSI shall dismiss the complaint without prejudice or take appropriate action as may be warranted. Hearing Officer and Composition of the Hearing Panel. simplification of issues. Preliminary Conference. Answer. It shall also furnish the SBCEG with supporting documents relevant to the formal charge. in his answer. – The Hearing Panel or Hearing Officer shall furnish the respondent with a copy of the formal charge. Any evidence not presented and identified during the preliminary conference shall not be admitted in subsequent proceedings. rules or regulations violated. – After the submission by the parties of their position papers. – Within sixty (60) days after the Hearing Panel or Hearing Officer has issued an Order declaring that the case is submitted for resolution. unless a motion for reconsideration shall have been timely filed. Q-35 05. Motion for Reconsideration. 4. 2. – The Resolution of the Monetary Board shall become executory upon the lapse of fifteen (15) days from receipt thereof by the parties or from the receipt of the denial of the motion for reconsideration. he shall issue an Order to the effect.– When the Resolution orders the imposition of fines. Resolution Becoming Executory. RULE VIII – EXECUTION OF RESOLUTION Sec. – The appeal shall not stay the Resolution sought to be reviewed unless the Court of Appeals shall direct otherwise upon such terms as it may deem just. – An appeal from the Resolution of the Monetary Board may be taken to the Court of Appeals within the period and in the manner provided under Rule 43 of the Revised Rules of Court. 1.– A motion for reconsideration may only be entertained if filed within fifteen (15) days from receipt of the Resolution by the parties. Sec.Page 3 . The affidavits of the parties and their witnesses shall take the place of their direct testimony. Contents and Period for Submission of Report. 2. RULE VII – APPEAL Sec. – After consideration of the report. Sec. The report of the Hearing Panel or Hearing Officer shall contain clearly and distinctly the findings of facts and conclusions of law on which it is based. motion for bill of particulars and such other dilatory motions shall be allowed in the cases covered by these Rules. Sec. Appeal. If the Hearing Panel or Hearing Officer finds no necessity for conducting a hearing. Prohibited Motions. Sec. 1. – No motion to dismiss or quash. RULE VI – RESOLUTION OF THE CASE Sec. Sec. In cases where the Hearing Panel or Haring Officer deems it necessary to allow the parties to conduct cross-examination. suspension or removal from office of respondent. 3. Hearing. 7.– The Resolution of the Monetary Board shall become final after the expiration of fifteen (15) days from receipt thereof by the parties. the case shall be set for hearing. Enforcement of Resolution. Rendition and Notice of Resolution. the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-35 . No second motion for reconsideration shall be allowed. Finality of the Resolution. 1. 1.12. 3. Effect of Appeal. their respective position papers which shall be limited to a discussion of the issues as defined in the Order. within ten (10) days from the receipt of said Order. the Monetary Board shall act thereon and cause true copies of its Resolution to be served upon the parties. RULE V – PROHIBITED MOTIONS Sec. the Hearing Panel or Hearing Officer shall determine whether or not there is a need for a hearing for the purpose of cross-examination of the affiant(s).APP. Sec.31 submit. a report shall be submitted to the Monetary Board. Section 2. orders or circulars or any part Q Regulations Appendix Q-35 . Repeal. RULE IX – MISCELLANEOUS PROVISIONS Section 1. the other parts or provisions shall remain valid.APP. regulations.31 enforcement thereof shall be referred to the appropriate department of the BSP. Separability Clause.12. amended or modified accordingly. Manual of Regulations for Non-Bank Financial Institutions .Page 4 thereof inconsistent with these Rules are hereby repealed. – All existing rules. – If any part of these Rules is declared unconstitutional or illegal. Q-35 05. 12. 4211Q. Collecting and Paying Agent of the principal and interest i.1. OTC or exchange). a copy of the prospectus or information sheet of the security. Pertinent registry rules and procedures h. Registry (address and contact numbers) g. Minimum selling lots. Liquidity feature of the instrument: f. Q-36 05.12. Procedures for selling the security in the secondary market (e. d. if immobilized or dematerialized. b. if certificated. but not limited to: a. commercial papers and other negotiable and non-negotiable securities or instruments that are not documented in accordance with existing BSP regulations and that it has strictly complied with the pertinent rules of the SEC and the BSP on the proper sale of securities to the public and performed the necessary representations and disclosures on the securities particularly the following: 1. Informed and explained to the client all the basic features of the security being sold on a without recourse basis.2. Issuer and its financial condition. f.. Disposition of the security g. g. c. Functions of the registry g. tax paid or tax-exempt). Informed the client that pursuant to BSP Circular No. 2.APP. or by means of book-entry transfer to the appropriate securities account of the BSP-accredited custodian in a registry for said securities. Term and maturity date. I HEREBY CERTIFY that on all banking days of the semester ended _____ that the ____________________ (quasi-bank) did not enter into any repurchase agreement covering government securities. f.31 FORMAT CERTIFICATION (Appendix to Subsec. Tax features (whether taxable. Authorized selling agents. to a BSP-accredited custodian that is mutually acceptable to the client and the quasi-bank. e.3.12) ______________________________ Name of Bank CERTIFICATION Pursuant to the requirements of Subsec 4211Q. 392 dated 23 July 2003 – • Securities sold under repurchase agreements shall be physically delivered. and f.Page 1 . and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-36 .1. Other pertinent terms and conditions of the security and if possible. such as.g. Applicable interest rate and its computation.3.2. Risk factors and investment considerations. 31 Securities sold on a without recourse basis are required to be delivered physically to the purchaser.12. Clearly stated to the client that: a. if certificated. the sole credit risk shall be borne by the client.Page 2 Manual of Regulations for Non-Bank Financial Institutions . and b. _______________ Name of Officer Position Date _____________ SUBSCRIBED AND SWORN to before me. affiant exhibiting his Community Tax Certificate as indicated below: Name Community Tax Cert. or to his designated custodian duly accredited by the BSP. this _____ day of _____. No. The quasi-bank is not performing any advisory or fiduciary function.APP. The quasi-bank does not guarantee the payment of the security sold on a “without recourse basis” and in the event of default by the issuer. Q-36 05. or by means of book-entry transfer to the appropriate securities account of the purchaser or his designated custodian in a registry for said securities if immobilized or dematerialized • 3. Date/Place Issued Notary Public Q Regulations Appendix Q-36 . _________________ Name of Officer Position SUBSCRIBED AND SWORN to before me. Date/Place Issued NotaryPublic Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-36 .Page 3 . the ____________________ (name of quasi-bank) does not have any outstanding repurchase agreements covering government securities.App. I hereby certify that as of 31 January 2005.31 Annex Q-36-a FORMAT CERTIFICATION (Annex to Appendix Q-36) ______________________________ Name of Bank CERTIFICATION Pursuant to the requirements of Subsec 4211Q. affiant exhibiting his Community Tax Certificate as indicated below: Name Community Tax Cert.12. No. Q-36 05. this _____ day of _____. commercial papers and other negotiable and non-negotiable securities or instruments that are not documented in accordance with existing BSP regulations.12. determination of system functionalities. and security policy and administration. but not limited to. consultants and/or service providers may be engaged to provide assistance/ support to the bank personnel assigned to perform such functions. include all the following: (i) Complete description of the work to be performed or services to be provided. For purposes of this Section. No bank or any director. When outsourcing of banking functions is allowed by law.APP. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-37 . (3) Comply with all laws and regulations governing the quasi-banking activities/services performed by the qualified service providers in its behalf such as. keeping of records and preparation of reports. (2) Documentary requirements.12. such as. banks may outsource all information technology systems and processes except for functions excluded in Item “1”. service level and contract management. but not limited to. Outsourcing of information technology systems/processes.Page 1 . the manpower to service the deposit substitute transactions of the former. or any act whereby the latter supplies. Subject to prior approval of the Monetary Board and submission of the same documentary requirements in Item “(2)” hereof. 4190S. 4190P and 4190N) a. ensuring the integrity of the data. strategic planning for the use of information technology. Banks cannot outsource management functions except as may be authorized by the Monetary Board when circumstances justify. 4190Q. transmission line security. or agent thereof shall outsource inherent banking functions. may not be outsourced. c.31 DUTIES AND RESPONSIBILITIES OF BANKS AND THEIR DIRECTORS/OFFICERS IN ALL CASES OF OUTSOURCING OF BANKING FUNCTIONS (Appendix to Sec. and transaction authentication. (1) Certain functions affecting the ability of the bank to ensure the fit of technology services deployed to meet its strategic and business objectives and to comply with all pertinent banking laws and regulations. Prohibition against outsourcing certain banking functions. officer. A bank intending to outsource information technology systems and processes shall submit the following documents to BSP which shall treat the same as strictly confidential: (a) Proposed contract between the bank and the service provider which should. change management inclusive of quality assurance and testing. employee. systems and controls of the banks and subject to the supervisory. at a minimum. internal control and clearing regulations. banks shall: (1) Carry out the same in accordance with proper standards. b. (ii) Fee structure. monitor and review on an ongoing basis the performance by the qualified service providers of the outsourced banking activities/services. (iii) Provisions regarding on-line communication availability. signing authorities. outsourcing of inherent banking functions shall refer to any contract between the bank and a service provider for the latter to supply. Subject to prior approval of the Monetary Board. regulatory and administrative authority of the BSP over the banks and their directors/officers. Q-37 08. (2) Be responsible for the performance thereof in the same manner and to the same extent as it was before the outsourcing. and (4) Manage. availability of competent. (x) Segregation of the data of the bank from that of the service provider and its other clients. fines. efficiency and quality of its overall operations. (v) Provisions governing amendment and pretermination of contract. software (program source code). software and infrastructure upgrades. including their reputation.31 (iv) Responsibilities regarding hardware. (xviii) Provision which requires the service provider to immediately take the necessary corrective measures to satisfy the findings and recommendations of BSP examiners and those of the internal and/ or external auditors of the bank and/or the service provider. (xii) Adequate insurance for fidelity and fire liability. (vi) Mandatory notification by the service provider of all systems changes that will affect the bank. omissions and frauds. penalties and accountability of the service provider for errors. financial condition. (b) Minutes of meetings of the board of directors of the bank concerned signed by majority thereof. prior to selecting the service provider with which it is entering into an outsourcing contract. Q-37 08. (xi) Disaster recovery/business continuity contingency plans and procedures. by the bank of various service providers and their proposals. 1405 (Bank Deposits Secrecy Law) actions that the bank may take against the service provider for breach of confidentiality or any form of disclosure of confidential information. user and system documentation. cost for development. (ix) Confidentiality clause covering all data and information. among others. (iii) The creation. insolvency. master and transaction data files. (xiv) Guarantee that the service provider will provide necessary levels of transition assistance if the bank decides to convert to other service providers or other arrangements. (xiii) Ownership/maintenance of the computer hardware. (xvi) Access of internal and external auditors to information regarding the outsourced activities/services which they need to fulfill their respective responsibilities. its role and contribution to the accomplishment of the strategic and business plans of the bank as well as the economy. (ii) The careful and diligent evaluation. recovery processes. No. internal controls. (viii) Responsibility. (vii) Details of all security procedures and standards. service level agreements. and (xix) Remedies for the bank in the event of change of ownership. Q Regulations Appendix Q-37 . solidary liability of service provider and bank for any violation of R. maintenance and support.APP. strategic or convenient location of support services and such similar other considerations.A. or receivership of the service provider.Page 2 (xvii) Access of BSP to the operations of the service provider in order to review the same in relation to the outsourced activities/services. attachment of assets. (xv) Access to the financial information of the service provider. organization and membership of a senior management oversight committee to handle and oversee the efficient implementation and monitoring of the applications/ Manual of Regulations for Non-Bank Financial Institutions . technically qualified and experienced personnel.12. assignment. certified by the secretary and attested by the president documenting their discussions on the following: (i) The benefits and advantages of outsourcing with respect to. and the applicable penalties. (v) the written engagement contract or service agreement with the external service provider shall. (h) property management services. (iv) there shall be a contingency plan to mitigate any significant disruption. and a detailed description of the roles and responsibilities of its members must be included in the minutes of the meeting or submitted as attachments thereto. That Item “A2” of the general requirements under Appendix Q-30 shall apply to the parent company while Items “A2”. “A5”. the work to be performed by the external service provider. banks may outsource the following functions. (ii) Track record. and the fees to be paid for. and (iv) At the option of the service provider or non-bank partner. (bb)set the scope and frequency of.APP. its organizational chart. particularly for high-risk areas. (i) internal audit. as a minimum: (aa) define the rights. (iii) List of clientele. services or activities: (a) data imaging. d. retrieval and other related systems.12. in case of joint ventures and other similar arrangements. (c) Profile of the selected service provider or the non-bank partner.31 operations of the service provider to ensure that the same is in accordance with the existing information technology initiatives. discontinuity or gap in audit coverage. which should include: (i) Most recent and complete financial and operational information. Outsourcing of other banking functions (1) Subject to prior approval of the Monetary Board. import and other trading transactions. (b) clearing and processing of checks not included in the PCHC System. subject to the following conditions: (i) the board of directors and senior management of the regulated entity remain responsible for maintaining an effective system of internal control and for providing active oversight of the outsourced internal audit activities/ functions. particularly banks and the services provided thereto by the service provider. (c) printing of bank deposit statements. policies and guidelines of the bank. other documents demonstrative of its competence and reputation in the field of information technology as applied to banking operations. and “A6” shall apply to the independent external auditor. (iii) the contract/service agreement with the external service provider shall not be entered into for a period longer than five (5) years. storage. (e) credit investigation and collection. organization and membership of a help desk to resolve all queries. “A4”. (f) processing of export. and (v) The systems and user acceptance tests that will be conducted by the service provider before full implementation of the outsourced systems/processes and the unsatisfactory results of which shall be valid ground to rescind the contract with the service provider.Page 3 . (cc) state that the outsourced internal audit services are subject to regulatory review and that BSP examiners shall be Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-37 . (ii) the external service provider shall be an independent external auditor included in the list of BSP-selected external auditors or a parent company which owns or controls more than fifty percent (50%) of the subscribed capital stock of the outsourcing entity: Provided. (d) credit card services. (iv) The creation. problems and other concerns arising from the applications/operations rendered by the service provider. the list of the members of such committee. expectations and responsibilities of both parties. (g) property appraisal. Q-37 08. (m) front/back office functions.31 granted full and timely access to internal audit reports and related working papers. (ff) state that internal audit reports are the property of the institution. the respective responsibilities of the bank and its parent/subsidiary (service provider). and will comply with professional and regulatory independence guidelines. courier and postal services. that the institution will be provided with copies of related working papers/files it deems necessary. (iv) The bank shall submit a Service Level Agreement duly signed by the concerned parties and any amendments thereto. (ee) specify that the external service provider must maintain the audit reports and related working papers/files for at least five (5) years. Q-37 08. (k) general bookkeeping and accounting services: Provided. credit administration and documentation services in favor of subsidiaries. and (gg) establish a protocol for changing the terms of the service contract and stipulations for default and termination of the contract. i. banks may outsource the following functions. (dd) state that the external service provider will not perform management functions. and a confidentiality clause.Page 4 provider) and such service provider shall service only entities belonging to its business group.APP. make management decisions. provided it does not involve the actual opening of deposit accounts. and any information pertaining to the institution must be kept confidential. (d) security guard services. and (r) such other activities as may be determined by the Monetary Board. and (v) Any breach in any of the above conditions shall subject the outsourcing of the aforementioned banking functions to all the requirements of this Appendix. deposits and other bank products and services.12. (n) back up and data recovery operations. by parent to a subsidiary or vice-versa. (e) vehicle service contracts. (ii) The bank shall remain a parent/ subsidiary of its subsidiary/parent (service Q Regulations Appendix Q-37 . (l) offsite records storage services.. (c) messenger.e. (j) marketing loans. trade support services and downstream processing activities. detailing the functions to be outsourced. (b) transfer agent services for debt and equity securities. That these activities do not include servicing bank deposits or other inherent banking functions. forms and promotional materials. subject to the following conditions: (i) The bank intending to outsource the aforementioned functions shall certify that the front office functions to be done by its parent/subsidiary (service provider) shall be limited to trade support services. or act or appear to act in a capacity equivalent to that of a member of management or an employee of the institution. (iii) The bank shall certify that no inherent quasi-banking functions involving deposit substitute transactions shall be outsourced to its parent/subsidiary (service provider). (p) loans processing. (q) loan documentation services (such as mortgage registration). (o) Call center operations for credit card and bank services provided that such bank services do not involve inherent banking functions. Manual of Regulations for Non-Bank Financial Institutions . affiliates and other companies related to it by at least five percent (5%) common ownership. services or activities: (a) printing of loan statements and other non-deposit records. (2) Without need of prior Monetary Board approval. g. (s) ATM incident management service. banks may enter into outsourcing contracts only with service providers with demonstrable technical and financial capability commensurate to the services to be rendered. (j) payroll of employees.APP. 621 dated 16 September 2008. (i) maintenance of computer hardware. network cabling systems. printers..12. 548 dated 25 September 2006 and 543 dated 08 September 2006) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-37 . (b) terms of the contracts. (p) compliance risk assessment and testing. 596 dated 11 January 2008. Q-37 08. (b) renegotiate or remedy the same and submit the amendments thereto or new contracts to the BSP. if any. and temporary staffing: Provided. (g) public relations services. That the service provider is not also the external auditor of the bank.i. the following alternative courses of action are available to the bank concerned: (a) preterminate said contracts. (As amended by Circular Nos.Page 5 . procurement services. disk drives. monitors. undertaken by the bank and/or service provider to ensure the secrecy and confidentiality of all other data and information. That the messages transmitted by the ATM machines to the service provider’s monitoring system are purely ATM statuses and in no way shall client or transaction information be sent. ground and other facilities maintenance. (m) personnel training and development. (h) sorting and bagging of notes and coins. Within six (6) months from 19 July 2005 – (1) banks should submit a list of all their existing contracts with service providers. Provided.e. (r) ATM card plastic embossing service. That these activities do not include servicing bank deposit substitutes or other inherent banking functions. and (d) such other information as may be necessary to show compliance with the pertinent provisions of this Appendix or be required by the Monetary Board. (k) telephone operator/receptionist services. Review of subsisting outsourcing contracts. and (2) for outsourcing contracts not in accordance with this Appendix. Provided. or (c) submit a program of compliance to the BSP. subject to the following conditions: (i) Only the ATM card number and the name of the depositor are printed/ indicated on the plastic card and stored in the magstripe. and (ii) Account/Transaction validation is done at the host level. f. When allowed by law. (o) legal services from local legal counsel. (n) buildings. (c) measures. e. e.31 (f) janitorial services. (q) tax compliance services. detailing the: (a) services/activities being outsourced. and (t) such other activities as may be determined by the Monetary Board. 623 dated 09 October 2008. (l) sale/disposal of acquired assets (ROPA). Service providers.. the bank’s computer. as the card number stored in the magstripe is linked to the deposit account number residing at the same host computer. UPS. 610 dated 26 May 2008. Pursuant to existing BSP regulations. Sec. If the securities sold are certificated. It may also perform value added services such as collecting and paying and securities borrowing and lending as agent. 4101Q. On the other hand. Statement of Policy. Q-38 07. The guidelines on the delivery of government securities by the selling bank to an investor’s Principal Securities Account with the RoSS through the Client Interface System facility are in Appendix Q-38b. administration of dividends or interest earnings and representation of clients in corporate actions. The certificate must be transferred to and registered under the name of the purchaser and properly recorded in the registry book. The disposition of compliance issues of this Appendix is shown in Appendix Q-38a. Registry of Scripless Securities of the Bureau of Treasury. Sec. Book-entry transfer to a sub-account for clients under the primary account of the seller will not be deemed compliant with this Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38 . respectively. 2. 4. a BSP-accredited securities registry is considered a third party if it has no subsidiary or affiliate relationship with the issuer of securities. The Bureau of Treasury. Sec. the following rules/guidelines shall be observed by banks and NBFI under BSP supervision in their dealings in securities whether they are acting as seller.31 IMPLEMENTATION OF THE DELIVERY BY THE SELLER OF SECURITIES TO THE BUYER OR TO HIS DESIGNATED THIRD PARTY CUSTODIAN (Appendix to Secs. holding title to the securities either in a nominee or trustee capacity. which serves as the official registry for government securities. as operator of the RoSS .4 and 4103N. a securities registry. A BSP-accredited custodian is considered a third party if it has no subsidiary or affiliate relationship with the issuer or seller of securities. agent or custodian.4. Except as otherwise provided in existing BSP regulations.3) Section 1. 3. or to his designated BSP-accredited custodian which must not be a subsidiary or affiliate of the issuer or seller. other than the Bureau of Treasury.12. It records the initial issuance of the securities and subsequent transfer of ownership and issues registry confirmation to the buyers/holders. Delivery of Securities.APP. or (2) the purchaser’s designated custodian in a registry of said securities. 4441Q and 4144N and Subsecs. 5. Pursuant to the policy of the BSP to promote the protection of investors in order to gain their confidence in the securities market as enunciated under Circular Nos. Sec. On the other hand. or to his designated BSP-accredited custodian. 392 and 428 dated 23 July 2003 and 27 April 2004. mark-to-market valuation. Mode of Delivery. A securities custodian is a BSP-accredited bank or NBFI designated by the investor to perform the functions of safekeeping. buyer. reports rendition. 4211Q. Distinction Between a Custodian and a Registry. delivery of immobilized or dematerialized securities shall be effected by means of book entry transfer to the appropriate securities account of either: (1) the purchaser in a registry of said securities. securities sold on a without recourse basis shall be delivered by the seller to the purchaser.Page 1 . delivery shall be effected physically to the purchaser. is not subject to BSP accreditation and is exempted from the independence requirement under the existing BSP regulations. is a BSPaccredited bank or NBFI designated or appointed by the issuer to maintain the securities registry book either in electronic or in printed form. said SPA shall clearly stipulate that the appointment of the agent is revocable at the instance of the securities owner/ purchaser or his agent. Q Regulations Appendix Q-38 . the custodian has the right to impose additional reasonable conditions similar to those being imposed on separate custody accounts maintained directly by individual or corporate clients. Sec.12.9. 6. Any revocation by either party shall be made in writing and must be given to the other party and to the custodian. The seller or dealer may. Whenever a securities owner/purchaser executes an SPA designating/appointing an agent to open and maintain a custodianship account with a BSP-accredited third party custodian pursuant to Sec. Said request/ instruction of the securities owner shall indicate that he is appointing an agent/ representative for the purpose. The selling or dealing bank or NBFI must inform their clients that the choice of custodian is the sole prerogative of the securities purchaser.APP.31 requirement. Authority of the Securities Owner/Purchaser to Revoke Special Power of Attorney (SPA).e. indicate to their clients their preferred custodian. however. The securities owner/purchaser shall enter into a custodianship agreement with a BSP-accredited third-party custodian of his choice. Reports of the Custodian. The delivery must be supported by a confirmation of book-entry transfer to be issued by the securities registry in case of name on registry or by a confirmation receipt to be issued by the custodian in case of delivery to the purchaser’s designated custodian. The custodian is hereby enjoined to acknowledge and respect said right of the client. buying and selling instructions including relaying of instructions to the custodian to receive or deliver securities in order to consummate the buy/sell transactions).Page 2 Sec. 3 and 4 above. the custodian shall deal directly with the securities owner or his newly appointed agent. It shall be delivered. 7. It shall be the responsibility of the custodian to protect the interest of the client by ensuring that the agent is acting within the scope of his authority. 6 above. Upon revocation of the SPA. Manual of Regulations for Non-Bank Financial Institutions . Custodianship Agreement. Client Information. However. together with the complete list of all BSP-accredited custodians. Sec. however. understood that the revocation of the SPA shall be without prejudice to any transaction executed by the agent or custodian prior to said party’s knowledge of the revocation. the securities purchasers/owners may designate/ appoint through a special power of attorney (SPA) a representative or agent for the purpose of opening and maintaining an account with the BSPaccredited third-party custodian: Provided. Attached as Annex “A” is a suggested template of the letter to the client. Periodic reports of the custodian on account balances shall be rendered at least quarterly and shall reflect the mark-to-market valuation of the security in accordance with existing BSP regulations. Q-38 07. That if the securities seller or dealer is appointed as an agent. Sec. However. Selling or dealing banks shall inform their clients of the requirements under Secs. its authority shall be limited to the opening of the custodianship account and the execution of trade transactions (i. It is. notwithstanding contrary advice of the BSP. mailed or electronically transmitted directly to the securities owner unless the securities owner gives a written request or instruction directly to the custodian to deliver said reports to a person/entity named therein. 8. 9. the seller/issuer is also a covered institution. recordkeeping and reporting of suspicious transactions.31 Aside from the periodic reports. type of security. ISIN or applicable certificate or reference number. and b. Nationality.A. Present address. otherwise known as the “AntiMoney Laundering Act of 2001”. Contact numbers. 3. Sec. 11. report on a quarterly basis to the appropriate department of the SES the volume of said securities broken down into maturity dates. 5. The securities seller or dealer shall not impose any condition that will impair this right of the securities owner or leave him no alternative except to sell his securities exclusively to the selling or dealing bank. ensure that said securities under custody are segregated from their proprietary holdings. Q-38 07. d. c. as amended. Sec. the custodian maintains a record of the referral together with the minimum information/documents required under the law and its implementing rules and regulations. 392 dated 23 July 2003 but who declined to deliver their existing securities to a BSP-accredited third party custodian. subject to the following conditions: a. and registry. Subject to the requirements of existing laws and regulations. SSS number or GSIS number. 457 dated 14 October 2004 to clients who are unable or unwilling to take delivery of said securities pursuant to the provisions of Circular No. in lieu of the face-to-face contact with client. For purposes of compliance with the requirements of R. By-laws. Undelivered Securities. 2. the seller/issuer certifies to the custodian that it has performed its own KYC screening on the client. Compliance with the Anti-Money Laundering Act of 2001. the custodian has unchallenged access to the KYC records/documents of the referring seller/issuer pertaining to the referral client. In cases where banks or NBFIs under BSP supervision maintain custody of securities which were sold prior to the effectivity of Circular No. a BSP-accredited custodian may rely on referral by the seller/issuer of securities. Nature of work and name of employer or nature of self-employment/business. Specimen signature. Permanent address. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38 . 12. and 10. the custodian shall also issue confirmation of transfers of ownership as they occur in either electronic or printed form delivered directly to the securities owner. 9160. For corporate clients: 1.12. 4. particularly the provisions regarding customer identification. 8. Date and place of birth. b. Source of fund(s). Right of the Securities Owner to Sell his Securities. 7. Tax identification number. securities owners shall have the right to choose the best buyers of his securities in the secondary market. without limiting himself to the original selling or dealing bank that he transacted with. Sec. unless the securities owner gives a written request or instruction directly to the custodian to deliver the confirmation reports to a person/entity named therein. No.APP. the seller/issuer must provide the custodian with the following minimum information/documents: For individual clients: 1. Articles of Incorporation/Partnership. and e. 2. 6.Page 3 . 10. said banks/financial institutions shall: a. Name. Safekeeping of Customers’ Identification Documents. Q-38 07. KYC or customer identification documents shall be made available to regulators for verification upon request. That: a. 4. if any.31 3. Nothwithstanding Secs. The BSP accredited custodian has received a certification from the seller/dealer that it has in its possession all required KYC documents and the custodian shall maintain a list of such documents. Sec. List of directors/partners.APP. The accredited custodian shall have unhampered access to the KYC documents for its own verification. and 10. Contact numbers.12. List of principal stockholders owning at least two percent (2%) of the capital stock. 5. as amended by M-2007-002 dated 23 January 2007) Manual of Regulations for Non-Bank Financial Institutions . Beneficial owners. 12 and 13. 524 dated 31 March 2006. the custodian is not precluded from conducting its own KYC activities and maintaining direct custody of the KYC documents of its clients.Page 4 identification documents supporting its KYC certification: Provided. 13. Authorized signatories. b. The BSP accredited third-party custodian may entrust to the referring seller/dealer the safekeeping and maintenance of the customer Q Regulations Appendix Q-38 . Official address or principal business address. 9. Verification of the identification and authority of the person purporting to act on behalf of the client. (Circular No. and c. 8. 6. Board/Partnership Resolution on the authority of the signatories. 7. in July of 2003 issued Circular No. Full control and possession of the securities purchased. and Capability to choose most competitive counter-parties in case of sale. 392. Series of 2003. The confirmation of sale or document of conveyance shall be physically delivered by the seller or dealer to the buyer. and lending of securities. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38 . 392 is part of a package of reforms to support the development of the domestic capital market through enhanced investor protection and greater market transparency..Page 5 . pledge. the bank has no liability to the buyer of securities in paying the obligation due on the security) to be delivered to the buyer/purchaser of securities through any of the following means: (a) If the security is evidenced by a certificate of indebtedness. The security must be delivered by book-entry transfer to the appropriate securities account of the buyer in the registry of said securities which must be evidenced by a confirmation in writing by the registrar to the buyer. Independent validation of the existence of securities purchased.31 Annex A TEMPLATE OF LETTER TO INVESTOR Dear Investor: We wish to inform you that the Bangko Sentral ng Pilipinas (BSP). b. The security must be delivered by book-entry transfer to the appropriate securities account of the BSP-accredited third party custodian designated by the buyer/purchaser in the registry of said securities which must be evidenced by a confirmation in writing by the registrar to the said BSPaccredited third party custodian. It aims to provide the client with the following benefits: a. the certificate must be transferred in the name of the purchaser/buyer and physically delivered to the purchaser/buyer or to his designated BSP-accredited third party custodian.APP. who shall in turn issue to the securities owner a delivery receipt acknowledging receipt of the securities Circular No.e.e. Regular reporting of securities holdings. It provides for a more defined role and responsibilities for the custodians and registrars and a stricter supervision and regulation thereof by the BSP. that the security is not evidenced by a certificate of indebtedness and instead security account is created in the electronic books of the registry in the name of the purchaser/buyer or his designated custodian): i. c. (b) If the security is immobilized or dematerialized (i. which requires all securities sold by banks on a “without recourse basis” (i.12. d. transfer. Q-38 07. or ii. is automatically accredited as securities registry. The registry is a BSP-accredited bank or non-bank financial institution (NBFI) designated or appointed by the Issuer to (1) maintain the securities registry book. As of date.31 Moreover. you have the option to require your dealer/broker to deliver the securities to you by requiring them to have the securities registered directly in your name in the registry of said securities or by requiring them to have the securities registered in the name of the BSP accredited third party custodian of your choice who in turn will credit your securities account with them. and Standard Chartered Bank. the BTR. The Registry of Scripless Securities (RoSS) operated by the Bureau of Treasury (BTR) which is acting as a registry for government securities. Q-38 07.A. therefore.12.APP. iv) represents the client (per its instruction) in the events of default or breach of contract of the issuer. to enable it to perform the following administrative functions/ services related to investing in a security or various securities: i) Mark to market valuation of security that will enable the client to know the value of his investment at any period in time. Circular No. ii) compute and collect the interest due on the security. Hongkong and Shanghai Banking Corporation. 392. and iv) favorable track record or significant experience in the custody business or related business. ii) competent management team to manage the company with responsibility and proper corporate ethics. either in a nominee or trustee capacity. They will also undergo regular audit by the BSP to ensure that they comply with BSP rules and regulations and will be subject to penalties and administrative sanctions for any violation thereof. seeks to address the changes in the legal framework brought by the developments in the market. is a BSP-accredited bank or NBFI designated by the investor to safekeep the security by allowing it to hold title to the security. The registrars and custodians underwent a rigorous evaluation process by the BSP to determine whether they have the following: i) adequate capital to cover for potential operating risks related to performing its custody functions. i. and v) lend the security of the clients as “agent” that will enable the client to earn additional income on the security. iii) robust technology system to operate the custody business efficiently. iii) render statements on outstanding securities under safekeeping. Philippine Depository and Trust Corporation. CITIBANK N. and (3) issue registry confirmation to the buyers/holders of security. (2) record the (a) issuance of the securities and (b) subsequent transfers of ownership thereof. cannot act as custodian of government securities pursuant to the opinion of the Secretary of Justice rendered on 17 January 2005 due to irreconcilable conflict of loyalties that is anathema to agency if the same institution were to act as registrar and custodian at the same time. on the other hand. Q Regulations Appendix Q-38 . where purchase of securities may be evidenced not only by transfer of certificates but also by electronic book-entry transfer of ownership in the books of the registrar for said security. Deutsche Bank. which amends CBP Circular 437-74. as registry. BSP has accredited the following registrars and custodians: Bank of the Philippine Islands. However.Page 6 Manual of Regulations for Non-Bank Financial Institutions . The custodian. As an investor. of securities which is dematerialized or scripless..e. Very truly yours. however. Please fill up and sign the required documentation of your chosen custodian and we will forward the same to them so that your securities account can be opened as soon as possible. In either case. You may. Q-38 07. If you have any further questions.Page 7 . the custody arrangement may or may not entail additional fees. Please note that the abovementioned arrangements may change once the BSP issues more detailed implementing rules and guidelines to the abovementioned circulars. please call us so that we can refer the matter to the appropriate custodian/registrar. We will update you if and when these developments occur.12.31 The custodian shall render periodic reports on your account balances on a quarterly basis. designate/appoint an agent for this purpose. You are. Said reports shall be delivered/mailed directly at your address unless you give a written instruction directly to the custodian to deliver the said reports to your designated person/ entity.APP. or at such interval as you may require. in either electronic or printed forms. however. Moreover. notwithstanding contrary advice of the BSP. (Circular No. required to acknowledge in the written instruction that you are designating another person/entity to receive the periodic reports from the custodian. 524 dated 31 March 2006. as amended by M-2007-002 dated 23 January 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38 . the custodian shall issue to you a confirmation of any transfer of ownership as it occurs. the dealing bank will be subject to the appropriate penalties prescribed under Subsec. in its Resolution No. 4211Q.4. 2. 4101Q.31 DISPOSITION OF COMPLIANCE ISSUES ON APPENDIX Q-38 (Appendix to Secs. The Monetary Board. transactions by the dealing bank with its clients. B. if a client wants to transact with securities. The clean-up of SPAs will cover those issued by clients prior to Circular No. in its Resolution No. the custodian should immediately freeze (i. 3. There will be no penalties imposed for dealer-banks and accredited securities custodians that allowed non-compliant SPAs prior to Circular No. The sending by a dealing bank to all its clients of: (a) a notice indicating a limitation on the authority of the dealing bank pursuant to Section 7 of Appendix Q-38. That the total penalty arising from that class of violation for the said period shall not exceed P100. the penalties under Subsec. 524 dated 31 March 2006 or those issued under Circular Letter dated 4 August 2005 if corrected within the thirty (30)-day period. 4441Q and 4144N and Subsecs.29 shall be applied for any violation of the provisions of Appendix Q-38.Page 1 .29. 7653 (The New Central Bank Act). Non-compliance with other provisions of Appendix Q-38 are not covered/qualified to be corrected within the thirty (30)-day period and are therefore subject to the usual penalty/sanctions under existing regulations. will be subject to a fine of P10. subject to the following conditions: 1. Accordingly. and 4.APP. Starting on 05 August 2006.04 August 2006: 1. Q-38a 06. no new movements in the security. and (b) compliant SPA for execution will be deemed substantial compliance only as of 05 July 2006. X441. have been sent to all their clients. for the period of 05 July 2006 .00. Custodians will allow transfers of securities from proprietary accounts of dealers to their omnibus principal custody accounts within the period. 876 dated 06 July 2006 approved the following disposition of compliance issues for the period of 05 July 2006 . Absent confirmation from the dealing bank of the sending of notices and the revised SPA. the dealing bank must require the submission of an executed compliant SPA before any new transaction can be entered into. Custodians shall be required to freeze the securities account for those without a compliant SPA from the investor. 3.3) A. 2.04 August 2006.. Otherwise. X441.12. Proof thereof should be preserved for examination purposes. except sale or disposition thereof) the account to be considered in substantial compliance. 524 dated 31 March 2006.00 per transaction/day: Provided. 4. the Custodian will not be subject to any penalties for accepting securities subject of the transaction. 581 dated 5 May 2006 approved a thirty (30) calendar day period from 05 June 2006 within which banks/nonbanks will effect revisions to nonconforming SPAs issued by investor-clients to strictly conform to the limited authority provisions of Section 7 of Appendix Q-38.000. The Monetary Board. Custodians will be deemed in substantial compliance as of 05 July 2006 if they have obtained confirmation from the dealing banks that notifications on the limitation of the dealing bank’s authority.4 and 4103N.000. Furthermore. computed in accordance with Section 37 of Republic Act No. Absent a compliant SPA. the dealing bank and custodian should “freeze” the account of the client. absent a compliant SPA but to which an advice on the limitation of the authority of the dealing bank and a compliant SPA for signature have been sent. together with a compliant SPA for the clients’ signature. (M-2006-009 dated 18 July 2006 and M-2006-002 dated 05 June 2006) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38a . However.e. (b) If the dealing QB/NBFI is designated as the agent of the client/investor.4. except sale/ disposition upon written instruction by the client/investor): Provided.4: Provided. Otherwise.e.4.4) The following are the guidelines on the delivery of government securities by the selling QB and/or NBFI under the supervision of the BSP to an investor’s Principal Securities Account with the Registry of Scripless Securities (RoSS) through the Client Interface System facility as compliance with the requirement of effective delivery under Secs.3 and 4103N.3.4. and (2) no additional securities have been lodged thereon since 04 November 2004.Page 1 . However.3. the sub-accounts maintained by the dealing QBs/NBFIs shall not be considered a violation of Subsecs. and. including relaying of instructions to the BTr. as operator of the RoSS. Subsecs. 4211Q.5. That in case of a client/investor who as of 04 November 2004 has not responded to the dealer’s letter regarding the disposition of his/its securities. no new movements in the account. and 4103N. 4441Q and 4144N. acting either as an accredited government securities eligible dealers (GSEDs) or licensed government securities dealers. For clarity. shall execute the attached Memorandum of Agreement (MOA) with the BTr regarding the creation of the Principal Securities Account with the RoSS on or before 31 January 2007. 4441Q and 4144N. 4441Q and 4144N.4.4 and (2) the revised Investor’s Undertaking (attached as Annex B) on or before 28 February 2007. 4211Q. That (1) the same were created on or before 04 November 2004.4.3 and 4103N. Subsecs.4: (a) QBs/NBFIs. 4103N. sale/ disposition of securities in the sub-accounts shall be allowed upon written instruction by the client/investor to dispose the same: Provided. 4103N. 4101Q. 4103N. buying and selling instructions. (d) Absent a compliant Investor’s Undertaking and SPA as of 01 March 2007. That starting 01 March 2007 no new Investors Principal Securities Account shall be created unless the investor submits a compliant Investor’s Undertaking and SPA.12. 4211Q.5.APP. and 4103N.31 DELIVERY OF GOVERNMENT SECURITIES TO THE INVESTOR’S PRINCIPAL SECURITIES ACCOUNT WITH THE REGISTRY OF SCRIPLESS SECURITIES (Appendix to Secs. (M-2007-002 dated 23 January 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38b . (e) The sub-accounts in the RoSS maintained by dealing QBs/NBFI for their client/investor who either (1) declined in writing the delivery of his/its securities to a direct registry account under his/its name or a third-party custodian or (2) have not responded to the dealer’s letter to the client/ investor as regards the disposition of his/its securities shall be frozen. 4211Q..4. 4101Q. the dealing QB/NBFI should freeze the account of the client/investor (i. 4101Q. 4103N.4.4.e. Q-38b 07. Subsecs.3 and 4104N. the dealing QB/NBFI will be subject to the appropriate penalties prescribed under Secs. (c) QBs/NBFIs shall require their clients/investors who have manifested the desire to have their own Principal Securities Account with the RoSS to execute (1) an SPA pursuant to Secs. Subsecs. 4101Q. 4101Q. the dealer should be able to obtain from the said client/investor the written instruction regarding the client/investor’s inability to take delivery of existing securities..4. 4103N. 4211Q. 4101Q. 4101Q.4. the authority of the dealing QB/NBFI under the Special Power of Attorney (SPA) executed by the client/investor shall be limited to the opening of the Principal Securities Account with the RoSS and the execution of trade transactions (i.4. The MOA between the BTr and GSED is attached as Annex A. to receive and deliver securities in order to consummate the buy/sell transaction). 4441Q and 4144N. Page 2 Manual of Regulations for Non-Bank Financial Institutions . Gen. Manila. and hereinafter referred to as “BTr”. on a without recourse basis. dated 31 March 2006. a domestic/ international/banking/financial institution organized and existing pursuant to the laws of the Republic of the Philippines/(country of incorporation). X238. the RoSS is an electronic registry of recording ownership of or interest in and transfers of government securities. duly licensed by the Securities and Exchange Commission (SEC) to deal in securities. as “Parties” in the plural/collective tense) WITNESSETH: THAT WHEREAS. Philippines by and between: The BUREAU OF THE TREASURY. accredited by the BTr to participate in the primary auction of government securities pursuant to Finance Department Order No. Soriano Avenue. 141-95. to the investor’s Principal Securities Account with the RoSS through the Client Interface System (CIS) Facility shall be sufficient compliance with the delivery requirement under Subsec. and hereinafter referred to as the Dealer. WHEREAS. as amended. -and__________________________________________. _______________________________. the Dealer is a government securities eligible dealer. (the “BTr” and the “Dealer” may be referred to as a “Party” in the singular tense. the Registry of Scripless Securities (RoSS) is the official registry of government securities issued by the National Government through the BTr.12.1 of the Bangko Sentral ng Pilipinas (“BSP”) Manual of Regulations for Banks and Circular No. WHEREAS. with principal office at Palacio del Gobernador Building. Q Regulations Appendix Q-38b . Luna corner A. Q-38b 07. represented herein by _____________________________________________ in her/his capacity as _________________________________________. WHEREAS.APP. 524. Intramuros. a duly constituted government bureau under the Department of Finance. the delivery of government securities sold by the Dealer. Republic of the Philippines.31 Annex A MEMORANDUM OF AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This agreement made and entered into this ______________________ at _________________________. and/or a bank/financial institution licensed by the SEC to deal in government securities in the secondary market. represented herein by the Treasurer of the Philippines. to promote transparency. Q-38b 07.31 WHEREAS. Consistent with BTr Memoranda dated 28 December 2005. investor confidence and deepening of the government bond market. Receive instruction from the Dealer through the RoSS-CIS for the creation/ opening of the Principal Securities Account. Create/open in the RoSS a Principal Securities Account for the requesting investor of scripless government securities through which all transactions affecting said securities will be recorded. recording of ownership of or interest in government securities requires the creation/opening of a Principal Securities Account with the RoSS through the CIS Facility.12. THEREFORE. instruct the BSP to credit the regular demand deposit account (DDA) of the investor’s settlement bank: Provided. Furnish the investor with Statement(s) of Securities Account. 6.Page 3 . On relevant coupon/maturity payment dates and for payments made through the BSP. WHEREAS. without adjustment in the amount of interest to be paid. The BTr shall: 1. Obligations of BTr. 3. WHEREAS. 5. as indicated in the Special Power of Attorney executed by the investor in favor of the Dealer for that purpose. investors of government securities purchase/trade the same in the secondary market through any of the dealers. NOW. or Holiday or on a day during which business operations of the BTr is suspended. Ensure that all government securities bought by investors from the Dealer are accurately recorded under the investor’s Principal Securities Account or to the Securities Custody Account of the investor’s designated third-party custodian. Provide and forward to the investor an electronic confirmation of his/its RoSS Principal Securities Account Number and notices and statements of account under any of the modes indicated in the Investor’s Oath of Undertaking submitted to the BTr. investors must be given adequate assistance in the opening/ creation of his/its Principal Securities Account with the RoSS (“Name-on.Registry”). at least quarterly and whenever there is a movement in the investor’s Principal Securities Account. Sunday. 7. 12 January 2006 and 31 January 2006 and applicable BSP regulations.APP. the parties hereby agree as follows: Section 1. 4. 2. disallow any increase in the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38b . payment/s shall be made by the BTr on the next business day. That if the coupon/maturity payment date falls on a Saturday. through the investor’s preferred mode of receipt of notice and/or statement. in view of the foregoing premises and the mutual covenants hereinafter provided. 2. as amended.31 holdings of beneficial owners of securities recorded in the sub-account of the Dealer. No. 2. Conduct the Know your Client (“KYC”) screening of its investors/clients referred to the BTr for the creation of the Principal Securities Account (Name-On-Registry) with the RoSS. immediately furnish the investor with the BTr’s electronic confirmation of its creation. Ensure that Special Power of Attorney (SPA) executed by client investors in their favor as agents of the former be limited. if any. The Dealer shall also provide to the investor the BTr electronic confirmation that include a statement on the credited amount of securities. Ensure that all government securities sold to investors are delivered to their appropriate Principal Securities Account with the RoSS. the Dealer shall submit and/or inform the investor to submit to the BTr his/her settlement account maintained in a settlement bank of his/her choice. Upon the creation of the investor’s Principal Securities Account with the BTr’s RoSS to which the securities subject of a sale will be credited. 4.A.12. 9160. Such written authority shall be furnished by the Dealer to the BTr prior to the execution of the transaction. 3. Q Regulations Appendix Q-38b . existing as of 02 February 2006. (b) maintain client identification records. through which all relevant payments on the securities will be made by the BTr. (c) report any suspicious transaction in accordance with the provisions of R. and its implementing rules and regulations. pursuant to BSP Circular No. 6. or to the account of the investor’s designated custodian. (d) afford BTr unchallenged access to said KYC records/documents. otherwise known as the “Anti-Money Laundering Act of 2001”. Assist the investor to open his/its individual Principal Securities Account (NameOn-Registry) with the RoSS through the CIS facility. Sec. either partial or total. 524. and whenever necessary. 5.Page 4 Manual of Regulations for Non-Bank Financial Institutions . The same KYC or customer identification documents shall likewise be made available to regulators for verification upon request. Obligations of the Dealer The Dealer shall: 1. under the sub-account of the Dealer for the beneficial owners may only be allowed if the Dealer is authorized in writing by the client/Investor. In this connection it shall: (a) issue a certification to the BTr that it has conducted the necessary “KYC” screening. for beneficial owners of securities who have either (a) declined in writing the delivery of his/its securities to a direct registry account under his or its name or a third-party custodian or (b) not responded to the Dealer’s letter to the investor as regards the disposition of his/its securities. Any withdrawal or sale of the securities. Transmit the investor’s instructions to the RoSS for the creation/opening of a Principal Securities Account. Q-38b 07. For this purpose.APP. 12. or any written authority executed by the client-investor in favor of the dealer. Ensure that all instructions transmitted to BTr concerning the securities account of clients-investors are legal. That in case of investors who have not responded to the Dealer’s letter regarding the disposition of his/its securities. As a minimum. Q-38b 07. all evidence of authority to transact on the securities issued by investor to such authorized agent. from the said securities holdings recorded in the Dealer’s sub-account only upon written request/instruction by the investor/client: Provided.APP. 10. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38b . 9.31 7. Disallow any increase in the securities holdings of clients recorded in its subaccount in the RoSS. or non-exclusivity of the selling GSEDs for subsequent transactions. The Dealer shall allow the client/ investor to withdraw or sell. 11. Undertake not to misuse the investor’s RoSS Account No. whether partial or total. legal encumbrances. Cut Off Period. which may come into its possession upon the creation of a Principal Securities Account for the investor or on previous transactions with the investor. provide BTr upon reasonable request. and 12. valid and duly authorized pursuant to an agreement. with particular emphasis on the feature of non-tagging of securities to GSEDs. Bondholders of record as appearing in the RoSS as of the Closed Period will be treated by BTr as the beneficial owners of such securities for any relevant payment. a special power of attorney. 8. with respect to clients who have either (a) declined in writing the delivery of his/its securities to a direct registry account under his or its name or a third-party custodian or (b) have not responded to the Dealer’s letter to the investor as regards the disposition of his/its securities. Whenever designated as authorized agent and/or settlement bank. The dealer shall furnish BTr such written request/instruction prior to the execution of the transaction. 3.Page 5 . No transfer of securities shall be allowed (i) during the period of two (2) business days ending on (and including) the due date of any redemption payment of principal and (ii) during the period of two (2) business days ending on (and including) the due date of any coupon payment date (the “Closed Period”). Whenever designated as authorized agent. the Dealer should be able to obtain from such investor a written advice that he is neither willing to take delivery nor have his securities delivered to a third-party custodian. Acquaint/apprise investors on the rules and procedure prescribed by the BTr in connection with investment and trading of scripless government securities. ensure confidentiality and prompt delivery of all notices and statements of securities account/s to investors. Sec. investors must be apprised of the Revised RoSS Procedure on Buy and Sell of Securities and recording of transfers through the RoSS-CIS facility found in the BTr website. BTr shall prevent any transfer of the securities to be recorded in the RoSS during any Closed Period. and other relevant information relative to investor’s security holdings. redemption value/proceeds of the investor’s securities. including but not limited to coupon payment. liability or responsibility for damages or injury incurred by the investor on account of the loss of his/its securities holdings unless the loss or injury was caused by the act or omission of the BTr. Effectivity. rules and regulations relative to reporting of suspicious accounts and deposits. 7.12. or responsibility for damages or injury incurred by the investor on account of the Dealer’s failure to pay/credit the investor’s settlement account. IN WITNESS WHEREOF. Sec. Sec. liability. Settlement Bank. The BTr. the investor shall be considered as having been fully paid on his/its securities and the Dealer shall then be responsible to the investor. Sec. employees and agents shall not be held liable for any claim. by giving 30 days prior written notice. In case the Dealer commits any fraudulent act or transaction in connection with government securities or violates any of its undertakings herein. BUREAU OF THE TREASURY [Dealer] By: By: _______________________ Treasurer of the Philippines _______________________ President & CEO Signed in the presence of: _______________________ Q Regulations Appendix Q-38b . Likewise. 6. the BTr shall have the right to impose administrative sanctions such as but not limited to dis-accreditation and/or suspension of accreditation as a government securities eligible dealer. 4. modified or repealed by the parties in writing. Limitation of Liability. 8. the BTr.31 Sec. Amendment and Repeal. the parties have hereunto signed these presents this _____________________ at _____________________. its officers. Q-38b 07. employees and agents shall be rendered free and harmless from any liability on account of effecting instruction/s transmitted by the Dealer to the RoSS which the latter believed in good faith to have emanated from the Dealer. The Dealer shall be responsible for compliance with the requirements of Anti-Money Laundering Law and other banking laws. This agreement may be amended. 9. Sec. Sanctions for Fraudulent Transactions. This agreement shall take effect immediately.Page 6 _______________________ Manual of Regulations for Non-Bank Financial Institutions . The BTr. its officers and employees and agents shall not be made liable for any claim.APP. its officers. and other administrative sanctions as may be prescribed by competent authorities without prejudice to civil or criminal prosecution in accordance with law. Compliance with Anti-Money Laundering Law. it shall confirm receipt of payments from BTr intended for the investor and shall promptly and punctually credit the investor’s bank account all said relevant payments on the securities. 5. Whenever the Dealer is designated by the investor as his/its settlement bank. Upon the crediting of the regular demand deposit account of the Dealer with BSP for the applicable payments. Sec. personally appeared: Name CTC No.Page 7 . including this page where this Acknowledgment is written.31 Republic of the Philippines) ________________________)S. Philippines. and acknowledge to me that the same is their free and voluntary act and deed and of the agency/institution they represent. by the Treasurer of the Philippines ________ ________________ ________ ________________ [Dealer] Rep. by ____________________ known to me to be the same persons who executed the foregoing instrument consisting of ____ ( ) pages. No. NOTARY PUBLIC Doc.12.:______ Series of ______ Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38b . a Notary Public for and in the City of ________________. WITNESS MY HAND AND NOTARIAL SEAL this _____________ at __________________.APP.: ______ Page No.: ______ Book No.S ACKNOWLEDGMENT BEFORE ME. Q-38b 07. Date & Place Issued Bureau of the Treasury Rep. including relaying of instructions to “the CUSTODIAN“ to receive or deliver securities in order to consummate the buy/sell transactions) and to be bound by the provisions of a written Authority or a special power of attorney. 2. To create/open through the Client Interface System a Principal Securities Account with the RoSS to ensure that title of said scripless securities is officially recorded in my/our name and under my/our control. B. Q-38b 07. or any relevant agreement I/we have entered into concerning my/our government security holdings.31 Annex B NOTE: TO BE SUBMITTED TO THE BUREAU OF THE TREASURY INVESTOR’S UNDERTAKING I/We. that all government securities floated/originated by NG under its scripless policy are recorded in the RoSS as well as subsequent transfer of the same. Hereby agree to execute. and that I/we will abide by the rules and regulations of BTr-RoSS concerning government securities. buying and selling instructions. That as a condition for the creation/opening of my/our Principal Securities Account with the RoSS.12. For Individual Investors of legal age Name: Address: Civil Status: For Juridical Entity authorized to do business in the Philippines Name: Principal Office Address: Place of Incorporation: Name of Representative: Capacity/Position of Representative: A.e. thereby confirming my/our authority for BTr-RoSS to carry out and execute the acts or instructions referred to in the aforesaid documents. pursuant to BSP Circular 524. I/we have opened a bank account with (_________________________________________ as Settlement Bank) to which coupon and maturity proceeds and any other payments to be made on my/our ________________ 1 Accredited by the Bureau of the Treasury 2 Licensed by the Securities and Exchange Commission Q Regulations Appendix Q-38b .APP. It is understood that the RoSS administered by the BTr is the official registry of ownership of or interest in government securities. a limited Special Power of Attorney in favor of either the dealing Government Securities Eligible Dealer1 (GSED) or Securities Dealer2 for the creation of a Principal Securities Account with the RoSS or for the execution of trade transactions (i.Page 8 Manual of Regulations for Non-Bank Financial Institutions . And further undertake as follows: 1. Note: In addition to the indicated manner of receiving notice(s) and statement(s). I/We further acknowledge that the BTr shall prevent any transfer of the securities to be recorded in the RoSS during any Closed Period. I/We hereby agree to abide with the Schedule of Fees and the manner of collection. and give notice at least three (3) business days prior to any coupon and/or maturity payment of any change in the Settlement Bank and/or bank account number. I/we shall have the said securities delivered to my/our agent/custodian for trading or any other transactions pursuant to a relevant written instruction/authority. statement of account. That I/we expressly agree and acknowledge that the crediting to the regular demand deposit account of my/our settlement bank of coupons and/or redemption value due my/our scripless securities shall constitute actual receipt of payment by me/ us.12. I/we understand that the BTr shall electronically deliver all Notices and Statements to my/our designated settlement bank. subject to prior notice to and in accordance with the procedures of the BTr. I/we undertake to sell the same to any of the GSEDs or Securities Dealers. That in the case of outright sale transactions of government securities.APP. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38b . or confirmation report.email address_________________ In the absence of an indicated choice. 4. Investor can directly secure from the BTr written copy of any notice.Page 9 . save those provided for under existing rules and regulations on government securities applicable to tax-exempt institutions. as may be prescribed by the BTr from time to time. undertake to furnish the RoSS of said bank account number. Otherwise. That no transfer of securities shall be made (i) during the period of two (2) business days ending on (and including) the due date of any redemption payment of principal and (ii) during the period of two (2) business days ending on (and including) the due date of any coupon payment date (the “Closed Period”). To receive notices and/or statements of account on a quarterly basis or whenever there is a movement in my Principal Securities Account from the RoSS through any of the following modes: (Please indicate choice) [ [ [ [ [ ] Pick-up at the RoSS ] Registered Mail to Home/Office Address _______________________ ] Deliver electronically to Agent ] Deliver electronically to Settlement Bank (for pick up) ] Email . 6.31 government securities holdings will be credited. 3. 5. government-owned or controlled corporations and local government units. including that of RTBs. Q-38b 07. 9. 8. its officers. upon demand of BTr. That I/we undertake to immediately notify the RoSS of any unauthorized trade of my/ our scripless securities. Q-38b 07. rules and regulations. damages or claims arising from failure of my/our Settlement Bank to credit my/our bank account for coupons and maturity values on due date. to disclose relevant information in compliance with Anti-Money Laundering laws.APP. That all instructions affecting my/our scripless securities which are transmitted to or received in good faith by the RoSS from myself/ourselves or my/our designated agent/custodian are covered by relevant documentation indicating my/our express consent and authority. IN WITNESS WHEREOF. That while it is understood that BTr shall maintain the strict confidentiality of records in the RoSS. I/we hereby expressly waive and authorize BTr. To hold the BTr.Page 10 Manual of Regulations for Non-Bank Financial Institutions . to the extent allowed by law. Philippines. employees and agents for any claim or damages with respect to trade instructions carried out in good faith. 13. To submit to the BTr the relevant special power of attorney or authorizations issued to my/our agent. employees and agents free and harmless against all suits. 10. 12. ____________________________________ Name & Signature of Investor Conforme: ____________________________________ Settlement Bank Q Regulations Appendix Q-38b . To render free and harmless the BTr. That I/we expressly warrant and authorize the delivery of copies of all evidence of authority granted to my/our designated agent/custodian to transact on my/our scripless securities upon reasonable demand by BTr. its officers.12. and until receipt of such notice. I/We hereunto affix our hands this _____ day of _______________ at _____________________. transactions effected by BTr in good faith are deemed valid. 11. actions.31 7. NOTARY PUBLIC Doc. No.31 ACKNOWLEDGMENT BEFORE ME. __________________________ ___________ (Investor or Representative of Juridical Entity) Date: Place of Issue: ____________ ________________ known to me to be the same person who executed the foregoing instrument and he/she acknowledged to me that the same is his/her free and voluntary act and deed (and the free act and deed of the entity they represent). WITNESS MY HAND AND NOTARIAL SEAL this ___________ at _________________. personally appeared: Name: CTC No. a Notary Public for and in the City of _____________.:______ Series of ______ Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-38b . Q-38b 07.Page 11 .APP.12. Philippines.: ______ Book No.: ______ Page No. 000 10. 000 Above P10 Billion but not exceeding P50 Billion P 7. 000 4. 000 1. 000 5. 250 1. 500 20. 000 17.Page 1 . 000 For purposes of this Regulation. 7653 ON QUASI-BANKS. Serious Offense . the following definition of terms shall mean: 1. 500 15.31 THE GUIDELINES FOR THE IMPOSITION OF MONETARY PENALTY FOR VIOLATIONS/OFFENSES WITH SANCTIONS FALLING UNDER SECTION 37 OF R. less serious. 000 1. categorized based on: (1) the nature of offenses such as minor. 000 P 25. 000 Above P50 Billion Above P200 million but not exceeding P500 million P 600 700 800 Above P500 million but not exceeding P1 Billion P 1. Q-39 05. 500 2. 000 Above P500 million but not exceeding P1 Billion P 3. 000 4.This refers to unsafe or unsound quasi-banking practice. whether act or omission. 000 Above P50 Billion Above P200 million but not exceeding P500 million P 1. DIRECTORS AND/OR OFFICERS (Appendix to Secs. An unsafe or unsound practice is one (1) in which there has been some conduct. 000 5. 4199Q. shall be as follows: A. 4599Q. 000 8. 4499Q. 000 Above P1 Billion but not exceeding P10 Billion P 10. 000 5. 000 7. A. 500 10. 000 B. For Minor Offense Asset Size Penalty Range Minimum Medium Maximum Up to P200 million P 150 200 250 P 6. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-39 . For Serious Offense Asset Size Penalty Range Minimum Medium Maximum Up to P200 million P 500 750 1. 500 2. 000 22. 000 20. 4299Q. NO. 000 12. 000 8. and/or serious. 500 30. 4399Q. 000 C. 000 Above P10 Billion but not exceeding P50 Billion P 18.12. which is contrary to accepted standards of prudent quasi-banking operation and may result to the exposure of the quasi-bank and its shareholders to abnormal risk or loss. For Less Serious Offense Asset Size Penalty Range Minimum Medium Maximum Up to P200 million P 300 350 400 P 15. and (2) the assets size of the quasi-bank. 000 27. 500 Above P1 Billion but not exceeding P10 Billion P 3. 000 Above P50 Billion Above P200 million but not exceeding P500 million P 300 400 500 Above P500 million but not exceeding P1 Billion P 600 700 800 Above P1 Billion but not exceeding P10 Billion P 1.APP. 4699Q) The schedule of penalty. 000 Above P10 Billion but not exceeding P50 Billion P 3. 000 1. asset condition. 3. an analysis of the impact thereof on the banks/quasi-banks/ trust entities’ operations and financial condition must be undertaken. Minor Offense . creditors. (c) The act or omission has caused any undue injury. or has given unwarranted benefits. can be corrected immediately and do not have material impact on the solvency. 4. Certain acts or omissions as falling under this classification maybe determined based on the guidelines provided under Appendix Q-24. Medium refers to the penalty to be imposed in the absence of any mitigating and aggravating circumstances or if the mitigating factor(s) offset the aggravating factor(s). Q-39 05. All other acts or omissions that cannot be classified under the major offenses/violations will be classified under this category. (b) The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution’s depositors. evident bad faith or gross inexcusable negligence. including evaluation of capital position. stability. Minimum refers to the range of penalties to be imposed if the mitigating factor(s) outweigh the aggravating circumstances. quasi-bank or trust entity. or (d) The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank. Less Serious Offense . liquidity or solvency of the institution. except those classified under unsafe or unsound banking practice.12. Per Financial Accounting Standard Board (FASB). 5.These include major acts or omissions defined as quasi-bank/ individual’s failure to comply with the requirements of banking laws. liquidity and profitability of the quasi-bank. investors. management. which if omitted or misstated. advantage or preference to the quasi-bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality.Page 2 Manual of Regulations for Non-Bank Financial Institutions . rules and regulations. whether or not the director or officer profited or will profit thereby. it is defined as the magnitude of an omission or misstatement of accounting information.APP. earnings posture and liquidity position. stockholders or to the Bangko Sentral or to the public in general. or abnormal risk or danger to the safety. provisions of Manual of Regulations(MOR)/Circulars/Memorandum as well as Monetary Board directives/instructions having material1/ impact on quasi-bank’s solvency.31 In determining the acts or omissions included under the unsafe or unsound banking practice. 2. Q Regulations Appendix Q-39 . could influence the economic decisions of users taken on the basis of the financial statements. The following circumstances shall be considered: (a) The act or omission has resulted or may result in material loss or damage. liquidity or profitability and/or those violations classified as major offenses under the Report of Examination. 1/ SFAS/IAS defines materiality as any information.These include acts or omissions which are procedural in nature. and Step 2: Determine whether there are aggravating and/or mitigating factors (as listed and defined in Annex A). In determining the amount of penalty. Violations of banking laws and Bangko Sentral regulations with specific penal clause are not covered by this Regulation.31 6. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-39 . Q-39 05.APP. or (c) Minor Offense. if and when deemed applicable by the Monetary Board.12. a two-stage assessment shall be conducted as follows: Step 1: Determine the nature of offense whether it is: (a) Serious.Page 3 . The foregoing monetary penalties shall be without prejudice to the imposition of nonmonetary sanctions. Maximum refers to the penalty to be imposed if the aggravating circumstances outweigh the mitigating factor(s). Both the aggravating and mitigating factors shall be considered for initial penalty imposition and subsequent requests for reconsideration thereto. (b) Less Serious. the number of times of commission or omission of a specific offense during the preceding three (3) . The quasi-bank/ Manual of Regulations for Non-Bank Financial Institutions . Aggravating Factors: (a) Frequency of the commission of specific violation – This pertains to commission or omission of a specific offense involving either the same or different transaction. Violations that have been existing for a long time before it was revealed/ discovered in the regular examination or are under evaluation for a long time due to pending requests or correspondences from quasi-banks on whether a violation has actually occurred shall be dealt with through this criterion. shall also be considered under this factor. Q-39 05.12. The volume of accounts involved in the loss is substantial/ significant in relation to the institution’s assets and capital. in cases where the violation has been elevated accordingly. appropriate support of facts or circumstantial evidence in this factor shall be considered.APP. This will also refer to a violation which may have been corrected in the past but found repeated in another transaction/account in the subsequent examination. (b) Duration of Violations Prior to Notification – This pertains to the length of time prior to the latest notification on the violation. The corrective action shall be reckoned with from the date of notification. (c) Continuation of offense or omission after notification – This pertains to the persistence of an act or offense after the latest notification on the existence of the violation. Moreover. The word “offense” pertains to a violation that connotes infraction of existing BSP rules and regulations as well as non-compliance with BSP/MB directives. Inasmuch as concealment and intention are speculative matters and may be difficult to establish. In evaluating this factor. Violations outstanding for more than one (1) year prior to notification. The act of concealing an offense or omission carries with it the intention to defraud regulators. Concealment may be apparent in cases when quasi-bank officers purposely complicates the transaction to make it difficult to uncover or refuse to provide information/documents that would support the violation/offense committed. which may or may not accrue from the offense or omission.31 Annex A Aggravating and Mitigating Factors to be Considered in the Imposition of Penalty 1. the amount of pecuniary benefit. This covers the period after the final notification of the existence of the violation until such time that the violation has been corrected and/ or remedied. will qualify as violations outstanding for a long time. either from the appropriate Supervision and Examination Department or from the Monetary Board and/or Deputy Q Regulations Appendix Q-39 . one shall consider the intention of the party(ies) involved and whether pecuniary benefit may accrue accordingly. “potential loss” refers to any time at which the quasi-bank was in danger of sustaining a loss. at the minimum. · Substantial actual loss – The quasibank has been exposed to a significant loss of earnings and capital. (e) Loss or risk of loss to quasi-bank – In assessing this factor. Intention precedes concealment.Page 4 Governor.year period shall also be considered. In determining frequency. (d) Concealment – This factor pertains to the cover up of a violation. · Moderate impact on banking industry or on public perception of banking industry. will also be considered. possibly causing a run on deposits and affecting the quasi-bank’s liquidity). While a loss was incurred. · Full Cooperation . investment scams etc. The volume of accounts involved for potential loss/risk is minimal/negligible. This may involve poor corporate governance and mismanagement of quasi-bank that may result to erosion of public confidence leading to bank run in various branches.12.Page 5 . Pessimistic perception of the banking public on the banking industry is highly observed. Resulting effect on the banking industry on the violation/offenses committed by the quasi-bank. This may involve reputational risk of the quasi-bank as a result of negative publicity generated for example. · Minimal risk of loss – The risk exposure on earnings or capital is minimal. 410 dated 29 October 2003 provides that external auditors of quasi-banks must report to BSP. Sources of data may come from news reports. This may also involve insider abuse of authority/ power. (e. 2.31 individual may have substantial/serious violations that could impact the reputation and earnings of the quasi-bank. (f) Impact to quasi-bank/banking industry– In assessing this factor. Q-39 05. if any. This may also trigger a bank run in other subsidiaries. However. it is appropriate to consider any possible negative impact or harm to the quasi-bank. e. pyramiding. The volume of accounts involved for minimal loss or substantial risk of loss is reasonable and manageable. Quasi-bank is not vulnerable to significant loss. by involvement of quasibank’s director/officer in activities not acceptable to the regulatory bodies.g. · Substantial impact on quasi-bank.App. · Substantial impact on banking industry or on public perception of banking industry. 1 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-39 . the banking industry is not affected for this isolated case. The violations/irregular activities of the quasi-bank may totally erode the trust and confidence of the quasi-banking public resulting to a nationwide bank run. Substantial risk of loss includes any potential losses the aggregate of which amounts to at least one percent (1%) of the capital of the quasi-bank1. · Minimal actual loss or substantial risk of loss – The quasi-bank has incurred minimal loss or will be exposed to substantial risk of loss of earnings or capital although both do not materially impact financial condition. any potential losses the aggregate of which amounts to at least one percent (1%) of the capital to enable the BSP to take timely and appropriate remedial action. No impact on banking industry. Assistance rendered by the quasi-bank during the investigation and/or examination conducted relative to the cited offense and/ or omission may be viewed favorably when computing the amount of penalty to be imposed on the quasi-Bank/individual. This is a worst-case scenario. A violation of law involving insider abuse may result in adverse publicity for the institution.g. Mitigating Factors (a) Good Faith – Good faith is the absence of intention of the erring individual/entity in the commission of a violation. The quasi-bank is willing to Cir. · With positive measures/action undertaken although not corrected immediately. the quasi-bank could absorb the loss in the normal course of business. The risk of loss would have little impact on the quasi-bank or its financial condition. The risk of loss aggregating to less than one percent (1%) of the capital of the quasibank will fall under this classification. among others.This is determined by the actions of the individual and/or quasi-bank towards the regulators after or even before notification of the offense and/or omission. The burden of proof.g. submission of reports to the BSP disclosing the violation committed by the quasi-bank based on the internal auditor’s findings) may be considered as the highest level of mitigation under this factor.31 remedy/correct the violation but is being restrained of its capacity to take immediate action thus. will undertake a Memorandum of Undertaking/Commitment for a specified period as a sign of good faith.APP. The quasi-bank has started to rectify the infraction by instituting reforms in their operations or systems. however. · Voluntary disclosure of offense Voluntary disclosure of the quasi-bank of the offense committed before it is discovered by BSP examiners in the Q Regulations Appendix Q-39 .12.Page 6 regular/special examination or in the supervisory work (e. Q-39 05. falls on the quasi-bank/individual to support its/his/ her claim of good faith and may be used as basis to mitigate the amount of penalty that may be imposed. Manual of Regulations for Non-Bank Financial Institutions . PCA essentially involves the BSP directing the board of directors of a bank. the State may act in accordance with law to avert potential financial system instability or economic disruption. the BSP must necessarily maintain stability of the financial system through preservation of confidence therein. For this reason. Limit or curtail dividend payments to preferred stockholders. 4.12. Business improvement plan – this component contains the set of actions to be taken immediately to bring about an improvement in the entity’s operating condition.APP. can enforce prompt corrective action (“PCA”)3 as soon as a bank’s condition indicates higher-than normal risk of failure. as supervisor. and 6. the BSP may also require any one (1). and 3. Curtail or limit the bank’s scope of operations including those of its subsidiaries or affiliates where it exercises control. including but not limited to any one (1).6 of Republic Act No. 2. These measures may include any or all of the following components: (1) Implementation of a capital restoration plan. Strengthen risk management. or a combination of the following: 1. Limit or curtail dividend payments to common stockholders. such closure is not the only option available to the BSP. (2) Implementation of a business improvement plan. and (3) Implementation of corporate governance reforms. as amended 3 Section 4. ideally within one (1) year. 7653 Section 17 and 18 of Republic Act No. 5. 2. 4192S. Change or replace management officials. prior to an open outbreak of crisis.Page 1 . 8791 1 2 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-40 .2 It is recognized that the closure of a bank or its intervention can be a costly and painful exercise. the BSP. Reduce risk exposures to manageable levels. is adjudged by the Monetary Board to have adverse systemic consequences. 3. When a bank’s closure. Limit or curtail fees and/or other payments to related parties. or a combination of the following: 1. In conjunction with this plan. This also includes measures to minimize potential shareholder conflicts of interest detrimental Section 3 of Republic Act No.31 PROMPT CORRECTIVE ACTION FRAMEWORK (Appendix to Secs. Reduce expenses. for instance. to institute strong measures to restore the entity to normal operating condition within a reasonable period. Other measures to improve the quality of earnings. 4192P and 4192N) In carrying out its primary objective of maintaining price stability conducive to a balanced and sustainable growth of the economy 1. Q-40 06. While preservation of confidence in the financial system may call for closure of mismanaged banks and/or financial entities under its jurisdiction. 3591. Capital restoration plan – this component contains the schedule for building up a bank’s capital base (primarily through an increase in Tier 1 capital) to a level commensurate to the underlying risk exposure and in full compliance with minimum capital adequacy requirement. Corporate governance reforms – this component contains the actions to be immediately taken to improve the composition and/or independence of the board of directors and to enhance the quality of its oversight over the management and operation of the entity. 4192Q. or Leverage Ratio2 falls below ten percent (10%). A reduction in exposures to and/or a termination or reduction of business relationships with affiliates that pose excessive risk or are inherently disadvantageous to the supervised financial institution. the BSP shall require the bank to enter into a MOU committing to the PCA plan. which opinion is confirmed by the Monetary Board. but are not limited. An enhancement to the frequency and/or depth of reporting to the board of directors. Q-40 06. SES to the Monetary Board for approval. but are not limited to. Finding of unsafe and unsound activities that could adversely affect the interest of depositors and/or creditors. and c. Any initiation of PCA shall be reported to the PDIC for notation. In order to monitor compliance with the PCA. sanctions may be imposed on any bank subject to PCA whenever there is unreasonable delay in entering into a PCA plan or when PCA is not being complied with. Upon PCA initiation. Tier 1 Risk-Based Ratio. 4106Q. depositors in a bank. (3) A serious supervisory concern has been identified that places a bank at morethan-normal risk of failure in the opinion of the director of the Examination Department concerned. to any one (1) or a combination of the following: a. Such actions could include. respectively. The initiation of PCA shall be recommended by the Deputy Governor. any one (1). and (5) restriction on declaration of dividends.31 to its creditors.APP. A finding of repeat violations of law or the continuing failure to comply with Monetary Board directives. 3. 2. and/or the combined capital account falls below the minimum capital requirement prescribed under Sec. A change in the composition of the board of directors or any of the mandatory committees [under the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI)]. These may include any or all of the following: (1) monetary penalty on or curtailment or suspension of privileges enjoyed by the board of directors or responsible officers. (3) denial of application for branching and other special authorities. Asset Quality. Management. or a combination of the following: 1. (4) denial or restriction of access to BSP credit facilities. A change of external auditor. The MOU shall be subject to confirmation by the Monetary Board. Such concerns could 1 2 include.Page 2 Manual of Regulations for Non-Bank Financial Institutions . (2) restriction on existing activities that the supervised financial institution may undertake. Subject to Monetary Board approval. b. A bank may be subject to PCA whenever any or all of the following conditions obtain: (1) When either of the Total Risk-Based Ratio1. Significant reporting errors that materially misrepresent the bank’s financial condition. Otherwise known as Capital Adequacy Ratio (“CAR”) Total Capital / Total Assets Q Regulations Appendix Q-40 . (2) The Capital Adequacy. quarterly progress reports shall be made. and 4. six percent (6%) and five percent (5%).12. particularly. Earnings. The BSP reserves the right to conduct periodic on-site visits outside of regular examination to validate compliance with the PCA plan. Liquidity and Sensitivity to Market Risk (“CAMELS”) composite rating is less than “3” or a Management component rating of less than “3”. or such other minimum levels that may be prescribed for the said ratios under relevant regulations. This likewise lays down measures to provide an acceptable level of financial transparency to all stakeholders. In cases where a bank’s problems are deemed to be exceptionally serious from the outset.12.APP. or when a bank is unwilling to submit to the PCA or unable to substantially comply with an agreed PCA plan. 29 (conservatorship) and Sec. the Deputy Governor. SES has determined that the financial and operating condition of the bank no longer presents a risk to itself or the financial system.Page 3 . Subject to Monetary Board approval.31 On the other hand. SES shall recommend such exemption to the Monetary Board for approval. if the bank subject to PCA promptly implements a PCA plan and substantially complies with its conditions. That the bank fully complies with the terms and conditions of its MOU and: Provided.A. it may continue to have access to BSP credit facilities notwithstanding non-compliance with standard conditions of access to such facilities. That the Deputy Governor. further. The Deputy Governor. 30 (receivership) of R. the PCA status of a bank may be lifted: Provided. Q-40 06. Such improved assessment shall be immediately reported to the PDIC. (Circular No. 523 dated 23 March 2006) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-40 . 7653. SES may immediately recommend to the Monetary Board more drastic actions as prescribed under Sec. Said balance shall decline over time as government securities previously bought from the BSP mature or are sold back to the BSP.31 GUIDELINES FOR THE CHANGE IN THE MODE OF COMPLIANCE WITH THE LIQUIDITY RESERVE REQUIREMENT (Appendix to Subsecs. Full or partial rollover of placements in the RDA shall be settled on a gross basis. Pre-termination of RDAs shall be allowed subject to a reduction in applicable interest rates. 3.Page 1 . Q-41 06. Only the outstanding ERAP and PEACe bonds shall qualify as eligible securities for liquidity reserves. Banks and QBs shall submit on placement date a written authority (see Annex A) to the TD to debit their demand deposit account with the BSP as payment for the RDA.5) The following guidelines shall be observed in implementing the change in the mode of compliance with the liquidity reserve requirement from holding government securities bought directly from the BSP: 1. 7. Future issuances will no longer carry the liquidity reserve eligibility under this section. the TD (while starting to accept placements in the reserve deposit account) shall continue to sell government securities for liquidity reserve purposes until 29 September 2006. Any deficiency in the liquidity reserves shall continue to be in the forms or modes prescribed under existing regulations for the composition of required reserves. The interest rates applied to the reserve deposit account (RDA) shall be set by the TD at one-half percent (1/2%) below the prevailing market rate for comparable government securities. 6. and 8.1 & 4405Q. (Circular Nos. 4246Q. 4. Government securities previously bought from the BSP in compliance with the liquidity reserve requirement shall remain eligible for such purpose until these mature or are sold back to the BSP at yields quoted by the BSP Treasury Department (TD). as prescribed by the TD.12. Principal and interest payments at maturity net of applicable tax shall be made by the BSP through automatic credit to the institution’s demand deposit account with the BSP. The above guidelines shall take effect on 25 August 2006. 551 dated 17 November 2006 and 539 dated 09 August 2006) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-41 . 5.APP. 2. Banks and QBs shall continue to specify in the prescribed reports to the Supervisory Data Center (SDC) of the BSP the balance of government securities held for liquidity reserve purposes. To facilitate the adoption of the change in the mode of compliance with the liquidity reserve requirement. Q-41 06. 551 dated 17 November 2006 and 539 dated 09 August 2006) Q Regulations Appendix Q-41 . (AUTHORIZED SIGNATORY)1 (AUTHORIZED SIGNATORY)2 (Circular Nos.Page 2 Manual of Regulations for Non-Bank Financial Institutions . VERY TRULY YOURS.Others CTF ACCORDINGLY.31 Annex A DEBIT/CREDIT AUTHORITY FORMAT ORDINARY WHITE PAPER 2 COPIES (COUNTERPARTY’S LETTERHEAD) DATE: ________________ TREASURY DEPARTMENT TREASURY SERVICES GROUP – DOMESTIC BANGKO SENTRAL NG PILIPINAS GENTLEMEN: THIS IS TO CONFIRM OUR RESERVE DEPOSIT ACCOUNT (RDA) PLACEMENT WITH YOUR OFFICE.APP. PLEASE DEBIT OUR REGULAR DEMAND DEPOSIT ACCOUNT WITH YOURSELVES ON VALUE DATE FOR THE PRINCIPAL AMOUNT OF (AMOUNT IN WORDS) (P) AND CREDIT THE SAME ACCOUNT ON MATURITY DATE THE AMOUNT OF (AMOUNT IN WORDS) (P) REPRESENTING FULL PAYMENT OF THE PRINCIPAL PLUS INTEREST (NET OF APPLICABLE WITHHOLDING TAX) THEREON.12. DETAILED AS FOLLOWS: VALUE DATE TERM MATURITY DATE RATE PRINCIPAL AMOUNT GROSS INTEREST WITHHOLDING TAX LIQUIDITY RESERVES FOR Deposit Liabilities & Deposit Substitute (PLEASE CHECK ONE) TOFA . the BSP will evaluate banking risk relative to its impact on capital and earnings. technological. and legislative changes. invested. When risk is not properly managed. expected or unanticipated. These categories are not mutually exclusive. and delivery systems. 4193P and 4193N) I. or borrower performance. In addition. geographic diversity. the existence of high risk in any area is not necessarily a concern. It arises any time FI funds are extended. As an organization grows more diverse and complex. and control the risks they assume. may have an adverse impact on the FI’s capital or earnings. 2. Credit risk is not limited to the loan portfolio. These changes have allowed FIs to expand product offerings. strategic.Page 1 . operational.31 GUIDELINES ON SUPERVISION BY RISK (Appendix to Secs. BSP will direct FI management to take corrective action such as reducing exposures. and reputation. The FI’s evaluation of risk must take into account how non-bank activities within a banking organization affect the FI. These risks are: credit. Under this approach. any product or service may expose the FI to multiple risks. the BSP will not necessarily attempt to restrict risk-taking but rather ensure that FIs identify. The BSP-SES has defined eight (8) categories of risk for FI supervision purposes. Increased risk in one (1) category can increase risk in other categories.APP. increasing capital. interest rate. 4193S. and manage risk according to its significance. II. Because of this complexity. risk is the potential that events. or otherwise exposed through actual or implied contractual agreements. the financial services industry has evolved in response to market-driven. whether reflected on or off the balance sheet. Background It must be recognized that banking is a business of taking risks in order to earn profits. so long as management exhibits the ability to effectively manage that level of risk. Consolidated risk assessments should be a fundamental part of managing the FI. understand. Large FIs assume varied and complex risks that warrant a risk-oriented supervisory approach. Likewise. Credit risk is found in all activities where success depends on counterparty. strengthening risk management processes or a combination of these actions. compliance. Market risk is the risk to earnings or capital arising from changes in the value Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-42 . market. III. While banking risks historically have been concentrated in traditional banking activities.12. FIs must evaluate. They have also increased the complexity of the FI’s consolidated risk exposure. From a supervisory perspective. the primary concern of the BSP is that the FI operates in a safe and sound manner and maintains capital commensurate with its risks. Further guidance on risk management issues will be addressed in subsequent issuances that are part of the overall risk assessment program. committed. they can be interdependent. control. Credit risk arises from counterparty’s failure to meet the terms of any contract with the FI or otherwise perform as agreed. the FI’s risk management processes must keep pace. liquidity. In all cases. Q-42 06. Types and definitions of risk 1. Statement of policy The existence of risk is not necessarily a reason for concern. Guidelines for risk management For purposes of the discussion of risk. issuer. 4193Q. or non-conformance Q Regulations Appendix Q-42 . Reputation risk exposure is present throughout the organization and requires the responsibility to exercise an abundance of caution in dealing with customers and the community. payment of damages. Reputation risk is the current and prospective impact on earnings or capital arising from negative public opinion. the resources deployed against these goals. prescribed practices. improper implementation of decisions. and lack of contract enforceability. error. technological. Compliance risk also arises in situations where the laws or rules governing certain FI products or activities of the FI’s clients may be ambiguous or untested. FIs that lose their reputation may suffer a run on deposits. Risk is inherent in efforts to gain strategic advantage. from changing rate relationships among different yield curves affecting FI activities (basis risk). limited business opportunities. internal policies and procedures.31 of traded portfolios of financial instruments. computing systems. Liquidity risk is the current and prospective risk to earnings or capital arising from an FI’s inability to meet its obligations when they come due without incurring unacceptable losses. Operational risk is evident in each product and service offered. 4. This affects the FI’s ability to establish new relationships or services or continue servicing existing relationships. laws. dealing. from changing rate relationships across the spectrum of maturities (yield curve risk). and the voiding of contracts. financial loss. competitive. or ethical standards. Operational risk is the current and prospective risk to earnings or capital arising from fraud. Compliance risk can lead to diminished reputation. and manage information. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. and in the failure to keep pace with changes in the financial services marketplace. rules. Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions. Q-42 06. and position-taking in interest rate. systems development. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. operating systems.APP. foreign exchange. Compliance risk is the current and prospective risk to earnings or capital arising from violations of. regulatory.12. 5. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk). This risk may expose the FI to litigation. the business strategies developed to achieve those goals. Manual of Regulations for Non-Bank Financial Institutions . The resources needed to carry out business strategies are both tangible and intangible. This risk exposes the FI to fines. equity and commodities markets. 3. This risk arises from market-making. and other environmental changes. or lack of responsiveness to industry changes. In extreme cases. regulations. delivery networks. and managerial capacities and capabilities. 6. 8. They include communication channels. maintain a competitive position. reduced franchise value. and from interest-related options embedded in FI products (options risk). This risk is a function of the compatibility of an organization’s strategic goals. Interest rate risk is the current and prospective risk to earnings or capital arising from movements in interest rates. The organization’s internal characteristics must be evaluated against the impact of economic. complexity of products and services. and the internal control environment. reduced expansion potential.Page 2 with. 7. Operational risk encompasses: product development and delivery. operational processing. and the quality of implementation. or a decline in its customer base. and the inability to deliver products or services. Large. 2. the more sophisticated should be the tools that measure it. the more complex the risk. Implement the FI’s strategy. Management must: a. monitoring is essential to ensure that management’s decisions are implemented for all geographies. An FI that does not have a risk measurement system has limited ability to control or monitor risk levels. products. In carrying out these responsibilities. and should occur at both the transaction and portfolio level. lines of authority. when needed. Capable management and appropriate staffing are also essential to effective risk management. and procedures that define responsibility and authority. Good risk measurement systems assess the risks of both individual transactions and portfolios. During the transition process in FI mergers and consolidations. 4. timely.APP. Sound risk management systems.Page 3 . An FI should periodically conduct tests to make sure that the measurement tools it uses are accurate. The FI should have a process to authorize exceptions or changes to risk limits when warranted. accurate. for example. standards. including risks that originate in non-bank subsidiaries and affiliates. and informative and should be distributed to appropriate individuals to ensure action. the effectiveness of risk measurement tools is often impaired because of the technological incompatibility of the merging systems or other problems of integration. and legal entities. Each FI should tailor its risk management program to its needs and circumstances. Control risk: The FI should establish and communicate risk limits through policies.12. business plans. Measure risk: Accurate and timely measurement of risk is essential to effective risk management systems. there is no single risk management system that works for all FIs. b. Larger. These control limits should be valid tools that management should be able to adjust when conditions or risk tolerances change. Identify risk: To properly identify risks. the transition should be tightly controlled. Welldesigned monitoring systems will allow the Board to hold management accountable for operating within established tolerances. complex FIs. Develop policies that define the FI’s risk tolerance and ensure that they are compatible with strategic goals. Q-42 06. and legal entities. they are independent of risk-taking activities. FI management of risk Because market conditions and company structures vary. and maintenance of risk management systems. Further. The Board must establish the FI’s strategic direction and risk tolerances. Management also must keep the directors adequately informed.31 IV. each program should: 1. the Board should approve policies that set operational standards and risk limits. diversified FIs should have strong risk controls covering all geographies. however. In merging or consolidating FIs. FI management is responsible for the implementation. products. Risk identification should be a continuing process. have several things in common. Monitoring reports should be frequent. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-42 . Regardless of the risk management program’s design. and accountability should be clear. more complex FIs must assess the impact of increased transaction volume across all risk categories. 3. an FI must recognize and understand existing risks or risks that may arise from new business initiatives. the resulting FI must make a strong effort to ensure that risks are appropriately measured across the consolidated entity. integrity. Monitor risk: FIs should monitor risk levels to ensure timely review of risk positions and exceptions. Therefore. For large. compensation should be structured to reward contributions to effective risk management. and principles. and control systems. Examiners document their conclusions regarding the quantity of risk.31 c. d. accurate. Processes are the procedures. for example) and recommend courses of action. values. and assess the effectiveness of processes. Effective processes are consistent with the underlying policies. Q Regulations Appendix Q-42 . When appropriate. 2. VI. and retain qualified personnel. In addition. internal/ external audit programs) that FI managers use to measure performance. personnel. It also facilitates discussions with FI management and directors and helps to ensure more efficient examinations. They understand the FI’s mission. V.g. Good staff and managers perform as expected. are efficient. This risk assessment drives supervisory strategies and activities. 1. Measuring risks using common methods of evaluation. Together. The appropriate department of the SES will accomplish this by: 1. Feedback should be timely. Significant deficiencies in any one of these areas will cause the BSP to expect the FI to compensate for these deficiencies in their overall risk management process. are qualified. and processes.12. Policies often set standards (on risk tolerances. this profile will incorporate potential material risks to the FI from non-bank affiliates’ activities conducted by the FI. develop. Q-42 06. Processes define how daily activities are carried out. accurate. and pertinent. as they are defined. Compensation programs should be designed to attract. Policies are statements of the FIs’ commitment to pursue certain results. Supervision by Risk Using the core assessment standards of the BSP as guide. supervision by risk allocates greater resources to areas with higher risks. Policies should express an FI’s underlying mission.APP. the quality of risk management. Specifically. Risk cannot always Manual of Regulations for Non-Bank Financial Institutions . and competent. Identifying risks using common definitions. policies. programs. processes. Assessment of risk management When assessing risk management systems. values. regardless of size or complexity. Personnel are the staff and managers that execute or oversee processes. Control systems include the tools and information systems (e. make decisions about risk. and practices that impose order on the FI’s pursuit of its objectives. 3. the core assessment and RAS give the appropriate department of the SES the means to assess existing and emerging risks in FIs. Ensure that strategic direction and risk tolerances are effectively communicated and adhered to throughout the organization. 2. and pertinent. are the foundation for supervisory activities. and the direction of risk using the RAS. The categories of risk. Subsidiaries and branches of foreign FIs should maintain sufficient documentation onsite to support the analysis of their risk management. The core assessment complements the risk assessment system (RAS). A policy review should always be triggered when an FI’s activities or risk tolerances change. an examiner will obtain both a current and prospective view of an FI’s risk profile. Oversee the development and maintenance of management information systems to ensure that information is timely. and are governed by checks and balances.Page 4 4. the BSP will consider the FI’s policies. the level of supervisory concern (measured as aggregate risk). Q-42 06.APP. it will adjust conclusions when appropriate. and verify transactions flowing between FIs and affiliates. it can then focus supervisory efforts on the areas of greater risk within the FI. 3. reduced. Once the risks have been clearly identified and communicated. To perform a consolidated analysis. It may determine that risks in individual FIs are increased.12. Evaluating risk management to determine whether FI systems and processes permit management to manage and control existing and prospective levels of risk. The appropriate department of the SES will discuss preliminary conclusions regarding risks with FI management. (Circular No.Page 5 . To fully implement supervision by risk. or mitigated in light of the consolidated risk profile of the FI as a whole. and the banking system. 510 dated 03 February 2006) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-42 . Following these discussions. the appropriate department of the SES will also assign CAMELS ratings to the lead FI and all affiliated FIs.31 be quantified in pesos. For example. numerous internal control deficiencies may indicate excessive operational risk. it obtain pertinent information from FIs and affiliates. the consolidated banking organization. The BSP shall consider the following factors: 1. monitored. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . The adequacy and effectiveness of the FI’s risk management practices and strategies as evidenced by: • The adequacy and effectiveness of board and senior management oversight. Q-43 06. If the BSP determines that an FI’s risk exposures are excessive relative to the FI’s capital. Further. Statement of policy For purposes of these guidelines. and offbalance-sheet activities of the FI. the BSP will not restrict the level of risk assumed by an FI. so long as the FI has the ability to effectively manage the risk. 3. • Management’s knowledge and ability to identify and manage sources of market risk as measured by past and projected financial performance. 4194Q. II. 4194S. so long as the FI is authorized to engage in such activities and: • Understands. or the scope of its financial market activities. an FI’s market risk management system shall be assessed under the FI’s general risk management framework. The risk dimensions of these products and strategies must be fully understood. • The adequacy and frequency of the FI’s internal review and audit of its market risk management process. financial institutions refer to banks and NBFIs supervised by the BSP and their respective financial subsidiaries. capital.31 GUIDELINES ON MARKET RISK MANAGEMENT (Appendix to Sec. the level and trend of market risk exposure and adequacy of capital relative to exposure. Therefore. monitoring. ranging from the most liquid fixed income securities to complex derivative instruments and structured products. the BSP will direct the FI to reduce its exposure to an appropriate level and/or strengthen its risk management systems. The major sources of market risk exposure and the complexity and level of risk posed by the assets. The principles set forth in these guidelines shall be used in determining the adequacy and effectiveness of an FI’s market risk management process.12. skills and appropriate system and technology necessary to understand and effectively manage their market risk exposures. 4194P and 4194N) I. and risk management systems. liabilities. The level of market risk assumed by an FI is not necessarily a concern. and • Maintains capital commensurate with the risk exposure assumed. • The adequacy of internal measurement. or that the risk assumed is not well managed. FIs now use a wide range of financial products and strategies. and management information systems. • Adopts risk management practices whose sophistication and effectiveness are commensurate to the risk being monitored and controlled. increased transaction volume and volatility. Background The globalization of financial markets. measures. • The adequacy and effectiveness of risk limits and controls that set tolerances on income and capital losses.Page 1 . and the introduction of complex products and trading strategies have made market risk management take on a more important role in risk management. the BSP expects FIs to have sufficient knowledge. monitors and controls the risk assumed. The FI’s actual and prospective level of market risk in relation to its earnings. consistent with the guidelines on supervision by risk as set forth under Appendix Q-42. 2.In evaluating the above parameters.APP. and controlled by a financial institution. the more complex an FI’s financial market activities are. consolidated monitoring should be employed to ensure that management’s decisions are implemented for all geographies. and legal entities. timely and accurate. Identifying market risk also includes identifying an FI’s desired level of risk exposure based on its ability and willingness to assume market risk. an FI’s market risk management process should: 1. Market risk management process An FI’s market risk management process should be consistent with its general risk management framework and should be commensurate with the level of risk assumed.Page 2 market risk usually involves establishing market risk limits that are consistent with an FI’s market risk measurement methodologies. market risk measurement models can be applied to quantify an FI’s market risk exposures. Control market risk. Definition and sources of market risk Market risk is the risk to earnings or capital arising from adverse movements in factors that affect the market value of instruments. Equity risk is the risk to earnings or capital arising from movements in the value of an institution’s equity-related holdings. IV.12.APP. Ensuring that market risk exposures are adequately controlled requires the timely review of market risk positions and exceptions. both on or off-balance sheet. Measure market risk. and position-taking in interest rate. Monitoring reports should be frequent. Foreign exchange risk refers to the risk to earnings or capital arising from adverse movements in foreign exchange rates. However.balance sheet positions.31 III. Limits may be applied through an outright prohibition on exposures above a pre-set threshold. In any case. An FI’s ability to assume market risk depends on its capital base and the skills/capabilities of its management team. Identify market risk. Q-43 06. and transactions in an institution’s overall portfolio. dealing. Although there is no single market risk management system that works for all FIs. market risk identification should be a continuing process and should occur at both the transaction and portfolio level. 3. Market risk arises from market-making. Further. Appropriate pricing strategies may likewise be used to control market risk exposures. complex FIs. as defined herein. Monitor market risk. Quantifying market risk exposures help an FI align existing exposures with the identified desired level of exposures. 2. 4. Identifying current and prospective market risk exposures involves understanding the sources of market risk arising from an FI’s existing or new business initiatives. the focus Manual of Regulations for Non-Bank Financial Institutions . Once the sources and desired level of market risk have been identified. the more sophisticated the tools that measure market risk exposures arising from such complex activities should be. products. products. Commodity risk is the risk to earnings or capital due to adverse changes in the value of an institution’s commodity-related holdings. While there are generally four sources of market risk. An FI should have procedures in place to identify and address the risk posed by new products and activities prior to initiating the new products or activities. equity and commodities markets. market risk cannot be managed in isolation. Market risk measurement systems should be integrated into an FI’s general risk measurement system and results from models should be interpreted in coordination with other risk exposures. Interest rate risk is the current and prospective risk to earnings or capital arising from movements in interest rates. by restraining activities or deploying strategies that alter the risk-return characteristics of onand off. Controlling Q Regulations Appendix Q-43 . For large. foreign exchange. Yield curves can steepen. Accepting interest rate risk is a normal part of financial intermediation and is a major source of profitability and shareholder value. While such re-pricing mismatches are fundamental to the business of financial intermediation. Yield curve risk Yield curve risk is the risk that rates of different maturities may change by a different magnitude. can pose a significant threat to an FI’s earnings and capital. Unanticipated shifts of the yield curve may have adverse effects on an FI’s earnings or underlying economic value. sell. but not the obligation to buy. both explicit and embedded. perspectives for evaluating an FI’s exposure to interest rate risk. Measuring the effects of interest rate risk Changes in interest rates affect both earnings and the economic value of an FI. are generally exercised to the advantage of the holder and the disadvantage of the seller. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . In some cases. flatten or even invert. Sources of interest rate risk a. the holder of an option can force a counterparty to pay additional notional. Options may be standalone instruments or may be embedded within otherwise standard instruments. the asymmetrical payoff characteristics of instruments with optionality can pose significant risk particularly to those who sell the options.APP. If not adequately managed. It arises from variations in the movement of interest rates across the maturity spectrum of the same index or market. d. 2. b. Interest rate risk Interest rate risk is the risk that changes in market interest rates will reduce current or future earnings and/or the economic value of a financial institution. Nevertheless.Page 3 . the principles set forth in the market risk management process and sound risk management practices are generally applicable to all sources of market risk. or in some manner alter the cash flow of an instrument or financial contract. since the options held.12. an effective risk management process that maintains interest rate risk within prudent levels is essential to the safety and soundness of FIs. 1. Re-pricing risk This is the most common type of interest rate risk and arises from differences in the maturity (for fixed-rate instruments) and repricing (for floating-rate instruments) of an FI’s assets. c. however. loans or even deposits which give a counter-party the right to prepay or even extend the maturity of an instrument or to change the rate paid. This has given rise to two separate. Q-43 06. a. A shift in the relationship between these rates or interest rates in different markets can give rise to unexpected changes in the cash flows and earnings spread between assets. liabilities and off-balance sheet (OBS) positions. or to forfeit notional already paid. Examples of instruments with embedded options include various types of bonds. The option holder’s ability to choose to alter cash flows creates an asymmetric performance pattern. liabilities and OBS instruments of similar maturities or re-pricing frequencies. but complementary. Option risk Option risk is the risk that the payment patterns of assets and liabilities will change when interest rates change. notes. an option gives the option holder the right. Formally. Thus. they also expose an FI’s earnings and underlying economic value to changes based on fluctuations in market interest rates.31 of this Appendix is interest rate risk and foreign exchange risk. Excessive or inadequately understood and controlled interest rate risk. Basis risk Basis risk arises from imperfect correlations among the various interest rates earned and paid on financial instruments with otherwise similar re-pricing characteristics. FIs should incorporate a broader focus on overall net income – incorporating both interest and non-interest income and expenses – if the FI reports significant levels of interest rate sensitive non-interest income. unexpected volatility in earnings can undermine an FI’s reputation and result in an erosion of public confidence. Many FIs hold assets such as bonds and fixed rate loans with extended terms. it is also important to consider a more comprehensive picture of the FI’s exposure to interest rate risk through an assessment of the FI’s economic value. large commercial or universal banks with complex. Further. b. However. However. Thus. For example. Changes in market interest rates may also affect the volume of activities that generate fee income and other non-interest income. Thus. multi-currency balance sheets. Economic value perspective The economic value of an FI can be viewed as the present value of an FI’s Manual of Regulations for Non-Bank Financial Institutions . the difference between total interest income and total interest expense). Many FIs use a modified interest rate gap or earnings simulation model to forecast earnings over a running next twelve (12) month time horizon under a variety of interest rate scenarios. there is value in such a system. Q-43 06..g. Earnings perspective An FI should consider how changes in interest rates may affect future earnings. Thus. The Q Regulations Appendix Q-43 . a. ± 100.31 Exposure to earnings typically receives the most attention. The full effect of changes in interest rates on the value of these assets cannot be fully captured by a short-term earnings model.12. and independently validated Value-at-Risk (VaR) methodology.Page 4 focus of analysis under the earnings perspective is the impact of changes in interest rates on accrual or reported earnings.APP. Trading activities should continue to be managed through the use of an effective. the BSP will expect an FI to employ alternative scenarios such as changes to the shape of the yield curve if the FI is exposed to significant levels of yield curve or basis risk. The BSP will not consider market risk to be “well managed” unless the FI has fully implemented an effective risk measurement system whose sophistication is commensurate with the nature and complexity of the risk assumed. the BSP will expect FIs to adopt systems that are capable of estimating changes to net interest income under a variety of interest rate scenarios. or FIs that accept large exposures of interest rate risk relative to capital will be expected to measure interest rate risk through a combination of earnings simulation and economic value. For example. FIs that hold significant levels of derivatives and structured products relative to capital should incorporate more severe rate movements (e. 200 and 300 basis points) to determine what happens if strike prices are breached or “events” are triggered. such as re-pricing gap analysis to manage their interest rate risk. earnings are a key measure in determining if the board of directors is creating value for the shareholders. Smaller FIs with non-complex single currency balance sheets may be able to use a single non-complex measurement methodology. Fluctuations in interest rates generally have the greatest impact on reported earnings through changes in net interest income (i. Volatility in earnings should be monitored and controlled because reduced earnings or outright losses can threaten the financial stability of an FI by undermining its capital adequacy. non-complex FIs with traditional business lines and balance sheets could potentially limit their simulations to a single ± 100 basis point parallel rate shock..e. Further. earnings over the next twelve (12) months do not present a complete picture of an FI’s exposure to interest rate risk. However. Given that a large portion of a typical FI’s liabilities and even assets re-price in less than one (1) year. V. monitoring and management information systems. As such. Managing earnings and economic exposures Management must make certain tradeoffs when immunizing earnings and economic value from interest rate risk. the BSP expects that economic value models will incorporate all significant classes of assets. a financial institution undertakes a risk that exchange rates might change subsequent to the time the contract is consummated. the discounted value of those earnings will be lower if interest rates rise. and vice versa. Appropriate risk measurement methodologies.31 expected net cash flows. a net “short” position. Adequate risk management policies and procedures. An excess of assets over liabilities is called a net “long” position and liabilities in excess of assets. FIs with significant levels of basis or yield curve risk are expected to add scenarios such as alternative correlations between interest rates and/or a flatter or steeper yield curve.Page 5 . In contracting to meet clients’ foreign currency needs or simply buying and selling foreign exchange for its own account.APP. If an FI has immunized earnings. An FI has a net position in a foreign currency when its assets. Hence. When earnings are immunized. Liquidity and settlement risks related to foreign exchange activities are outside the scope of these guidelines.12. Foreign exchange risk Foreign exchange risk (FX risk) is the risk to earnings or capital arising from changes in foreign exchange rates. Nevertheless. 3. While a variety of models are available. its periodic earnings must increase when rates rise and decline when interest rates fall. Also. liabilities and OBS. Q-43 06. FIs are also exposed to other risks including liquidity and credit risks. the BSP expects an FI to address the four (4) basic elements of a sound risk management system: 1. including spot and future contracts to purchase. managing FX risk includes monitoring an FI’s net FX position. particularly related to the settlement of foreign exchange contracts. including spot and future contracts to sell. economic value becomes more vulnerable. Sound market risk management practices When assessing an FI’s market risk management system. and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . such that expected earnings remain constant for any change in interest rates. The economic value of equity. limits. like that of other financial instruments. limits structure. Foreign exchange risk may also arise from maintaining an open foreign exchange (FX) position. Thus. it provides a more comprehensive view of the potential longterm effects of changes in interest rates than is offered by the earnings perspective. Conversely. if an FI fully immunizes its economic value. b. future guidelines may be issued on these risk areas. Active and appropriate Board and senior management oversight. caps. defined as the expected cash flows from assets minus the expected cash flows from liabilities plus the expected net cash flows on off-balance sheet (OBS) positions. and its liabilities. the FI should incorporate a variety of interest rate scenarios to ensure that any strike prices. in that currency are not equal. or “events” are breached in the simulation. 2. is a function of the discounted net cash flows it is expected to earn in the future. its economic value will fluctuate with rate changes. It should be noted that when engaging in foreign exchange activities. FIs should have an integrated approach to risk management in relation to its foreign exchange activities: FX risk should be reviewed together with other risks to determine the FI’s overall risk profile. As with earnings at risk. The BSP should be able to discern a clear hierarchal structure with a clear assignment of responsibility and authority. As with other risk factor categories. What constitutes adequate market risk management practices can therefore vary considerably. ensuring that the level of market risk is maintained within tolerance and at prudent levels supported by adequate capital. In order to carry out its responsibilities. Monitor the FI’s performance and overall market risk profile. Active and appropriate board and senior management oversight1 Effective board and senior management oversight of an FI’s market risk activities is critical to a sound market risk management process. In addition. discusses and approves strategies and policies with respect to market risk management. it may also underestimate risk when positions in one affiliate are used to offset positions in another affiliate. Reporting should be timely and clearly This section refers to a management structure composed of a board of directors and senior management. the notions of the board of directors and the senior management are used in these guidelines not to identify legal constructs but rather to label two decision-making functions within a FI. This is because a conventional accounting consolidation may allow theoretical offsets between such positions from which an FI may not in practice be able to benefit because of legal or operational constraints.31 4. FIs should fully recognize any legal distinctions and possible obstacles to cash flow movements among affiliates and adjust their risk management practices accordingly. A. For instance. Owing to these differences. While consolidation may provide a comprehensive measure in respect of market risk. Comprehensive internal controls and independent audits.12. Establish and guide the FI’s strategic direction and tolerance for market risk. 2.Page 6 Manual of Regulations for Non-Bank Financial Institutions . Q-43 06. In this case. The specific manner in which an FI applies these elements in managing its market risk will depend upon the complexity and nature of its activities. The BSP is aware that there may be differences in some FIs as regards the organizational framework and functions of the board of directors and senior management.APP. Q Regulations Appendix Q-43 . Identify senior management who has the authority and responsibility for managing market risk and ensure that senior management takes the necessary steps to monitor and control market risk consistent with the approved strategies and policies. branches of foreign banks have board of directors located outside of the Philippines and are overseeing multiple branches in various countries. the Board should: 1. as well as the level of market risk exposure assumed. the BSP should see a clear and documented pattern whereby the Board reviews. It is important that these individuals are aware of their responsibilities with 1 regard to market risk management and how market risk fits within the organization’s overall risk management framework. “board-equivalent” committees are appointed. Regardless of the systems used. The Board should be regularly informed of the market risk exposure of the FI and any breaches to established limits for appropriate action. While it is not possible to provide a comprehensive list of documents to consider. however. the BSP will not consider market risk to be well managed unless all four of the above elements are deemed to be at least “satisfactory”. At the same time. banking groups (banks and subsidiaries/ affiliates) should monitor and manage market risk exposures of the group on a consolidated and comprehensive basis. Responsibilities of the board of directors The board of directors has the ultimate responsibility for understanding the nature and the level of market risk taken by the FI. there should be evidence that the Board periodically reviews and discusses the overall objectives of the FI with respect to the level of market risk acceptable to the FI. 3. The board of directors should encourage discussions among its members and senior management – as well as between senior management and others in the FI – regarding the FI’s market risk exposures and management process. 6. 4. even if board and senior management exhibit active oversight. Thus. and control the FI’s market risk. objectives and risk tolerances into operating standards that are well understood by personnel and that are consistent with the board’s intent. they have the responsibility to ensure that the FI has personnel available who have the necessary technical skills to evaluate and control market risk. While board members need not have detailed technical knowledge of complex financial instruments. should ensure that analysis and market risk management activities are conducted by competent staff with technical knowledge and experience consistent with the nature and scope of the FI’s activities. Responsibilities of senior management Senior management is responsible for ensuring that market risk is adequately managed for both long-term and day-today basis. monitoring and information systems. limits structure. monitor. legal issues or sophisticated risk management techniques. Develop and implement policies. procedures and practices that translate the board’s goals. adequate systems for measuring market risk. 3. and reporting market risk exposures. strategic. Maintain appropriate limits structure. 5. liquidity. controls and audit must be considered adequate before quality of board and senior management can be considered at least “satisfactory”. managing. Further. 4. This responsibility includes ensuring that there is continuous training of personnel on market risk management and providing competent technical staff for the internal audit function. 2. measure. Ensure that adequate resources are available for evaluating and controlling market risk. procedures. Ensure that adequate resources. are devoted to market risk management.Page 7 . senior management should: 1. In evaluating the quality of oversight. operational. such as credit. Oversee the implementation and maintenance of management information and other systems to identify.APP. and standards for measuring performance. Senior management should also periodically review the organization’s market risk management policies and procedures to ensure that they remain appropriate and sound. and reputation risks. the FI’s policies. the BSP shall evaluate how the board and senior management carry out the above functions/responsibilities. including branches of foreign banks. Q-43 06. monitoring and control of market risk. sound management oversight is highly related to the quality of other areas/elements of an FI’s risk management system. In managing the FI’s activities. There should be sufficient depth in staff resources to manage these activities and to accommodate the temporary absence of key personnel and normal succession. Establish effective internal controls over the market risk management process. measurement methodologies. 5.12. In assessing an FI’s capital adequacy for market risk. both technical and human resources. the Board should consider the FI’s current and potential market risk exposure as well as other risks that may impair the FI’s capital. Ensure adherence to the lines of authority and responsibility that the board has established for measuring. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 .31 presented. Senior management of FIs. Ensure that the FI implements sound fundamental principles that facilitate the identification. measurement. and authorizations. Management should define the specific procedures to be used for identifying. Description of the relevant product or strategy. portfolios.APP. B. 3. at a minimum. Market risk policies should also identify quantitative parameters that define the acceptable level of market risk for the FI. Policies and procedures should delineate lines of responsibility and accountability and should clearly define authorized instruments. Policies and procedures should be consistent with the nature and complexity of the FI’s activities. Larger or more complex FIs should have a designated independent unit responsible for the design and administration of the FI’s market risk measurement. new products and activities should undergo a careful pre-acquisition review to ensure that the FI understands their market risk characteristics and can incorporate them into its risk management process. position-taking opportunities. Identification of the resources required and unit/s responsible for establishing sound and effective market risk management of the product or activity. FIs should therefore have risk measurement. and the Q Regulations Appendix Q-43 . Use/purpose of the new product/ activity. and control functions with clearly defined duties that are sufficiently independent from position-taking functions of the FI and which report risk exposures directly to the board of directors. The nature and scope of safeguards to minimize potential conflicts of interest should be in accordance with the size and structure of an FI. limits.31 Lines of responsibility and authority FIs should clearly define the individuals and/or committees responsible for managing market risk and should ensure that there is adequate separation of duties in key elements of the risk management process to avoid potential conflicts of interest. Q-43 06. Where appropriate. 4. limits should be further specified for certain types of instruments. and activities. contain the following features: 1. the BSP will assess whether adequate and effective policies and procedures have been adopted and implemented across all levels of the organization. It is important that FIs identify market risk. Proposals and the subsequent new product/activity review should be formal and written. documented and duly approved by the board of directors. reporting and approving exceptions to policies. Management should ensure that sufficient safeguards exist to minimize the potential that individuals initiating risktaking positions may inappropriately influence key control functions of the market risk management process. Specifically.Page 8 market risk models used to quantify market risk. For purposes of managing market risk inherent in new products. When reviewing banking groups. Adequate risk management policies and procedures An FI’s market risk policies and procedures should be clearly defined. inherent in new products and activities and ensure these are subject to adequate procedures and controls before the new products and activities are introduced or undertaken. monitoring. Analysis of the reasonableness of the proposed activities in relation to the FI’s overall financial condition and capital levels. hedging strategies. 2. Major hedging or risk management initiatives should be approved in advance by the board or its appropriate delegated committee. proposals should. All market risk policies should be reviewed periodically and revised as needed. and Manual of Regulations for Non-Bank Financial Institutions .12. as well as other risks. monitoring and control functions. banks holding an expanded derivatives license and FIs engaging in options or structured products with embedded options cannot capture all material sources of market risk by using static models such as the re-pricing gap. Assumptions and limitations of the measurement approach. the use of reasonable and valid assumptions is important for a measurement system to be precise. monitor. Q-43 06. such as the loss of precision. and the accrual book. Pricing models and simulation techniques will probably be required. should be treated separately. When using gap analysis. C. the ability to capture all material sources of market risk in a timely manner may require an FI’s market risk measurement system to be interfaced with other systems. There is also a question on the extent to which market risk should be viewed on a whole institution basis or whether the trading book. In designing market risk measurement systems. the FI must assess the significance of the potential loss of precision in determining the extent of aggregation and simplification to be built into the measurement approach. and 3. complexity. and OBS positions. Utilize generally accepted financial concepts and risk measurement techniques. such as the treasury system or loan system. and nature of activities that give rise to market risk.12. Depending upon the size. should be documented. There are a number of methods/ techniques for measuring market risks. On the other hand. and should be capable of identifying any excessive exposures that might arise. In addition.Page 9 . the precision of interest rate risk measurement depends in part on the number of time bands into which positions are aggregated. Complexity ranges from simple markingto-market or valuation techniques to more advanced static simulations using current holdings to highly sophisticated dynamic modeling techniques that reflect potential future business activities. Procedures to be used to measure. monitoring. smaller non-complex FIs should have the ability to mark-tomarket or revalue their investment portfolio and construct a simple re-pricing gap. Appropriate risk measurement methodologies. In practice. At a minimum. which is often not. aggregation of positions/cash flows into broad time bands implies some loss of precision.APP. 2. liabilities. Clearly. These systems should provide meaningful measures of an FI’s current levels of interest rate risk exposure. Have well-documented assumptions and parameters. and control the risks of the proposed product or activity. which is marked to market. The assumptions underlying the measurement system should be clearly understood by risk managers and senior management. limits structure. FIs should ensure that the degree of detail regarding the nature of their positions is commensurate with the complexity and risk inherent in those positions. Assess all material market risk associated with an FI’s assets. and management information system Market risk measurement models/ methodologies It is essential that FIs have market risk measurement systems that capture all material sources of market risk and that assess the effect of changes in market risk factors in ways that are consistent with the scope of their activities. As a general Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . These FIs should have interest rate risk measurement systems that assess the effects of rate changes on both earnings and economic value.31 5. Market risk measurement systems should: 1. assumptions can be supported and are valid. The use of models introduces the potential for model risk. The BSP expects that adequate controls will be established to ensure that all material positions and Q Regulations Appendix Q-43 . are critical in measuring interest rate risk. The integrity and timeliness of data is a key component of the market risk measurement process. or from calibrating. a bank with expanded derivatives license will use pricing models as basic tools in valuing position from its derivatives activities and structured products. applying and implementing models incorrectly. Assumptions regarding maturity of deposits. The validity of correlation assumptions to aggregate market risk exposures is likewise important as breakdowns in correlations may significantly affect the validity of model results. model risk is the risk of loss arising from inaccurate or incorrect quantification of market risk exposures due to weaknesses in market risk methodologies. Any manual adjustments to underlying data should be documented. A single measurement system can facilitate analysis of market risk exposure. Manual of Regulations for Non-Bank Financial Institutions .and off. the BSP will expect the FI to ensure that input data are timely and correct. from employing input parameters that are unreliable. methodologies cannot be expected to flawlessly predict potential losses arising from market risk. All market risk measurement methodologies require various types of inputs. The treatment of positions where behavioral maturity is different from contractual maturity requires the use of assumptions and may complicate the measurement of interest rate risk exposure. including both trading and non-trading sources. Assumptions and inputs should be subject to control and oversight review.12. Critical to model accuracy is the validity of underlying assumptions. and the nature and reasons for the adjustments should also be clearly understood. Different methodologies may also be applied to the trading and accrual books. it is desirable for any measurement system to incorporate market risk exposures arising from the full scope of an FI’s activities. Q-43 06. For example. for example. management should have an integrated view of market risk across products and business lines. Regardless of the measurement system used. Key assumptions should therefore be subject to rigorous documentation and review. the methodologies used produce accurate results. Regardless of the number of models or measurement systems used.balance sheet positions are incorporated into the measurement system on a consistent and timely basis. In addition. including hard data.Page 10 cash flows from on. (1) Model input. Thus. particularly when using the economic value approach. This applies equally to simple gap as well as complex simulation models. While accuracy is key to an effective market risk measurement system.APP. It may arise from relying on assumptions that are inconsistent with market realities. Any significant changes should be approved in advance by the board of directors.31 rule. (2) Model risk. Inputs should be verified through a process that validates data integrity. the bank should use simulation models to assess the potential effects of changes in market risk factors by simulating the future path of market risk factors and their impact on cash flows from these activities. this does not preclude different measurement systems and risk management approaches being used for similar or different activities. However. and the results can be easily understood by senior management and the board. readily observable parameters such as asset prices. and both quantitatively and qualitatively-derived assumptions. 4. These policies should clearly define the responsibilities of staff involved in the development/ acquisition process. However. Model validation.12. Policies and procedures should be duly approved by the board of directors and properly documented. Model development/acquisition. The BSP expects FIs to conduct backtesting of model results. Back-testing. Before models are authorized for use. implementation and revisions. implementation and revision of market risk models. complex FIs to adopt policies governing development/ acquisition. The BSP expects FIs to implement effective policies and procedures to manage model risk. should at a minimum implement the following controls: a. the BSP expects that the staff validating the models will have the necessary technical expertise. Significant discrepancies should prompt a model review. 2. To be more effective. The scope of policies and procedures will depend upon the type and complexity of models developed or purchased. frequency of back-testing. back-testing should be conducted by parties independent of those developing or using the model. Again. The use of proprietary models that employ unconventional techniques that are not widely agreed upon by market participants is likewise more sensitive to model risk. The BSP expects larger. Tests of internal logic and mathematical accuracy. Policies should address the scope of the backtesting process. documentation requirements. Q-43 06. A sound validation process should rigorously and comprehensively evaluate the sensitivity of the model to material sources of model risk and includes the following: 1. Independent model validation is a key control in the model development process and should be specifically addressed in an FI’s policies. 3. FIs should ensure that modeling techniques and assumptions are consistent with widely accepted financial theories and market practices. Back-testing is a method of periodically evaluating the accuracy and predictive capability of an FI’s market risk measurement system by monitoring and comparing actual movements in market prices or market risk factors with projections produced by the model. The BSP expects that FIs will periodically review or reassess their modeling methodologies and assumptions. Even the use of standard models may lead to errors if the financial tools are not appropriate for a given instrument. the frequency of review will depend on the model but Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . FIs holding an expanded license or significant levels of complex investments including structured products.APP. The BSP also expects that revisions to models will be performed in a controlled environment by authorized personnel and changes should be made or verified by a control function. b. and management responses.31 Model risk is more likely to arise for instruments that have non-standard or option-like features. Complex models should be back-tested continually while simple models can be back-tested periodically. An inventory of the models in use should be maintained along with documentation explaining how they operate. Further. Written policies should specify when changes to models are acceptable and how those revisions should be accomplished. Periodic review of methodologies and assumptions. Development of empirical support for the model’s assumptions. they should be validated by individuals who are neither directly involved in the development process nor responsible for providing inputs to the model.Page 11 . vendors should provide adequate information on how the models were constructed and validated so that FIs have reasonable assurances that the model works as intended. Stress testing should be designed to provide information on the kinds of conditions under which the FI’s strategies or positions would be most vulnerable. stress from one market may transmit shocks to other markets and give rise to otherwise dormant risks. Reports should be provided to senior management and the Board as a basis for making decisions.g.Page 12 In addition. FIs may be constrained from performing validation procedures related to internal logic. and liquidity risk). Q-43 06.. significant limitations. changes in the liquidity of key financial markets. stress scenarios should include conditions under which key business assumptions and parameters break down.. Model review could also be prompted when there is a need for the model to be updated to reflect changes in the FI or market.12.e. Possible stress scenarios might include abrupt changes in the general level of interest rates.g. Guidelines for performing stress testing should be detailed in the risk management policy statement. Evaluating interconnected risk involves assessing the total or aggregate impact of singular events. Regardless of size and complexity of activities. (3) Model output. and the results of such stress tests to ensure that appropriate contingency plans are in place. interest rates and foreign exchange rates) and across the various categories of risk (e. Stress testing are simulations that show how a portfolio or balance sheet might perform during extreme events or highly volatile markets. interest rates).31 complex models should be reviewed at least once a year.g. credit. Q Regulations Appendix Q-43 . interconnection risk considers the linkages across markets (e.. However. Further. yield curve risk). the BSP will expect FIs with material market risk exposure. changes in the slope and the shape of the yield curve (i. For example. or when a new product or activity is introduced. Report content should be clear and straightforward. Thus. the quantitative level of risk estimated by the Manual of Regulations for Non-Bank Financial Institutions . or changes in the volatility of market rates. special consideration should be given to instruments or markets where concentrations exist.. Stress testing The underlying statistical models used to measure market risk summarize the exposures that reflect the most probable market conditions.” While stress testing typically considers the movement of a single market factor (e. when changes are made. The stress testing of assumptions used for illiquid instruments and instruments with uncertain contractual maturities are particularly critical to achieving an understanding of the FI’s risk profile. Thus stress tests must be tailored to the risk characteristics of the FI. such as liquidity risk. c. When conducting stress tests.. changes in the relationships among key market rates (i. indicating the purpose of the model. mathematical accuracy and model assumptions. Management and the board of directors should periodically review the design.APP.e. The review process should be performed by an independent group as it is considered to be part of the risk control and audit function. FIs should consider also “worst case” scenarios in addition to more probable events. as vendors often claim proprietary privilege to avoid disclosing information about their models. basis risk). particularly from derivatives and/or structured products to supplement their stress testing with an analysis of their exposure to “interconnection risk. the BSP expects FIs to supplement their market risk measurement models with stress tests. major assumptions. The use of vendor models can present special challenges. volume limits. Such limits usually specify acceptable levels of earnings volatility under specified interest rate scenarios. specified scenarios should take account of the full range of possible sources of interest rate risk to the FI including re-pricing. Limits represent the FI’s actual willingness and ability to accept real losses. past performance. Simple scenarios using parallel shifts in interest rates may be insufficient to identify such risks. Market risk limits may include limits on net and gross positions. to maintain the FI’s exposure within the set tolerances over a range of possible changes in market risk factors such as interest rates. Based on these tolerances. In assigning interest rate risk limits under the earnings perspective.31 simulation. Moreover. In addition. senior management should establish appropriate risk limits. At a minimum. such as earnings at risk or economic value-atrisk techniques. duly approved by the Board. stop-loss limits. Market limits structure The FI’s board of directors should set the institution’s tolerance for market risk and communicate that tolerance to senior management. FIs should explore limits on the variability of net income as well as net interest income in order to fully assess the contribution of non-interest income to the interest rate risk exposure of the FI. This is particularly important for FIs with significant exposures to these sources of market risk. Limits may also be based on measures derived from the underlying statistical distribution of interest rates. Most importantly. FIs using simple gap should establish limits on mismatches in each time bucket on a stand-alone and cumulative basis. more complex FIs should establish limits on the potential impact of changes in market risk factors on reported earnings or/and the FI’s economic value of equity. Sophisticated simulations should be used carefully so that they do not become “black boxes” producing numbers that have the appearance of precision but may not be very accurate when their specific assumptions and parameters are revealed.12. and option risks. the board and senior management should consider the nature of the FI’s strategies and activities. yield curve. Limits should be approved by the board of directors. and management skills.APP. An FI’s limits should be consistent with its overall approach to measuring market risk. earnings-at-risk limits and other limits that capture either notional or (un)expected loss exposures. Furthermore. For FIs engaged in traditional banking Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . Q-43 06. For example. re-pricing gap limits. Larger. the board and senior management should consider the level of the FI’s earnings and capital and ensure that both are sufficient to absorb losses equal to the proposed limits. limits should be flexible to changes in conditions or risk tolerances and should be reviewed periodically. The form of limits for addressing the effect of rates on an FI’s economic value of equity should be appropriate for the size and complexity of its underlying positions. limits should be adopted to control potential losses in the investment portfolio to a pre-set percentage of capital. The rate movements used in developing these limits should represent meaningful stress situations taking into account historic rate volatility and the time required for management to address exposures. a comparison to Board approved limits and a qualitative discussion regarding the appropriateness of the FI’s current exposures. value-at-risk limits. interest rate risk limits may be keyed to specific scenarios of movements in market interest rates such as an increase or decrease of a particular magnitude. basis. In setting risk limits.Page 13 . An effective system of internal control for market risk includes: 1. reliable financial and regulatory reporting. The circumstances leading to a tolerance of breaches should be clearly described. Summaries of the findings of reviews of market risk policies. A strong control environment. and 5. Limit exceptions should be communicated to appropriate senior management without delay. regulations. for FIs with significant holdings of long-term instruments. including any findings of internal and external auditors and retained consultants. D. and 6. Depending on the nature of an FI’s holdings and its general sophistication. Adequate information systems. The level of detail of risk limits should reflect the characteristics of the FI’s holdings including the various sources of market risk the FI is exposed to. more detailed limit systems may be required. portfolios. Manual of Regulations for Non-Bank Financial Institutions . 3. Reporting of risk measures should be done regularly and should clearly compare current exposure to policy limits.Page 14 the board on a regular basis. 2. and the adequacy of the market risk measurement systems. they should at a minimum include the following: 1. 5. and methodologies. Summaries of the FI’s aggregate exposures. Q-43 06. These internal controls should be an integral part of the institution’s overall system of internal control and should promote effective and efficient operations. and correlation assumptions. procedures. Market risk monitoring and reporting An accurate. 3. 4. 2. and institutional policies. and compliance with relevant laws. In addition. for example. While the types of reports prepared for the board and for various levels of management will vary based on the FI’s market risk profile. An adequate process for identifying and evaluating risk. Policies should include how senior management will be informed and what action should be taken by management in such cases.31 activities. informative. or specific instruments. past forecasts or risk estimates should be compared with actual results to identify any modeling shortcomings. Reports demonstrating the FI’s compliance with policies and limits. or other structured instruments. prepayment information. Results of stress tests. relatively simple limits may suffice. Reports detailing the market risk exposure of the FI should be reviewed by Q Regulations Appendix Q-43 . instruments with embedded options. instrument types. The establishment of control activities such as policies. However. under specific circumstances. procedures. 4. options. Particularly important is whether limits are absolute in the sense that they should never be exceeded or whether. breaches of limits can be tolerated for a short period of time. non-maturity deposit behavior. Risk controls and audit Adequate internal controls ensure the integrity of an FI’s market risk management process. The BSP also expects that the limits system will ensure that positions that exceed predetermined levels receive prompt management attention.APP. Summary of key assumptions. An effective internal audit and independent validation process. limits can also be identified for individual business units. and timely management information system is essential for managing market risk exposures both to inform management and to support compliance with board policy. including those assessing breakdowns in key assumptions and parameters. Continual review of adherence to established policies and procedures.12. and methodologies used. FIs should ensure that all aspects of the internal control system are effective. portfolios. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . In such cases. and that appropriate follow-up action was implemented when limits were breached. The results of this review.or offbalance-sheet activities. the review should include testing aimed at ensuring that the subsidiary systems are well-integrated and consistent with each other in all critical respects. including risk measurement. and recommend solutions to any identified weaknesses. test. The BSP expects that FIs with complex risk exposures should have their measurement. should be reported to senior management and/or the board. and complexity of its activities. parameters. the model itself often contains various audit checks to ensure. scope.12. Independent reviews of the market risk measurement system should also include assessments of the assumptions. and control functions reviewed on a regular basis by an independent party (such as an internal or external auditor).This includes verifying that balances and contractual terms are correctly specified and that all major instruments. 2.1 3. and that its procedures are actually accomplishing their intended objectives. evaluate the 1 system’s accuracy. for example. there should be a mechanism in place to ensure that these are implemented in a timely manner. exposure limits. reconciliations. The BSP expects that FIs will establish a process to ensure that its personnel are following established policies and procedures. and document the current measurement process. routines may be programmed to investigate whether the balances being extracted from various transaction systems match the balances recorded on the FI’s general ledger.. and business units are captured in the model. are actually key aspects of an effective system of internal control. Management should ensure that all such reviews and evaluations are conducted regularly by individuals who are independent of the function they are assigned to review. The reasonableness and validity of scenarios and assumptions – This includes a review of the appropriateness of the It is acceptable for parts of the reconciliation to be automated. and other control mechanisms designed to provide a reasonable assurance that the institution’s market risk management objectives are achieved. The appropriateness of the FI’s risk measurement system(s) given the nature.Page 15 . including those aspects that are not directly part of the risk management process. It is essential that any independent reviewer ensures that the FI’s risk measurement system is sufficient to capture all material elements of market risk. Similarly. monitoring. If the measurement system incorporates one or more subsidiary systems or processes. Among the items that an audit should review and validate are: 1. that maturing balances do not exceed original balances. monitoring. whether arising from on. e.31 Policies and procedures should specify the approval processes.APP. Many attributes of a sound risk management process. An important element of an FI’s internal control system is regular evaluation and review. The review should also investigate whether data extracts and model inputs have been reconciled with transactions and general ledger systems. Such reviews should seek to understand. Such reviews and evaluations should also address any significant change that may impact the effectiveness of controls. reports written by external auditors or other outside parties should be available to the BSP.g. reviews. When revisions or enhancements to internal controls are warranted. The accuracy and completeness of the data inputs . along with any recommendations for improvement. and control functions. Q-43 06. earnings and economic value simulation estimates. in part.The scope and formality of the measurement validation will depend on the size and complexity of the FI.12. liabilities.1 4. Where market risk is undertaken as part of an FI’s trading activities. the BSP will determine if: (a) All material market risk associated with an institution’s assets. complex FIs. For instruments or portfolios with market prices. Unfavorable results may lead the FI to revise model relationships. internal systems must be capable of measuring risk using both an earnings and economic value approach. In cases where an FI accepts significant market risk in its accrual book. In performing this assessment. Capital adequacy In addition to adequate risk management systems and controls. The validity of the risk measurement calculations . This information will typically be found in internal management reports. and the results of stress tests. (b) Generally accepted financial concepts and risk measurement techniques are utilized. 2 The validity of the model calculations is often tested by comparing actual with forecasted results. existing capital adequacy ratio requirements shall prevail. VI. As part of sound market risk management. FIs must translate the level of market risk they undertake whether as part of their trading or non-trading activities. and the FI does not routinely mark all of its balance sheet to market. Reconciling the results of economic valuation systems can be more difficult because market prices for all instruments are not always readily available. For larger. internal and external auditors may have their own models against which the FI’s model is tested.31 interest rate scenarios as well as customer behaviors and pricing/volume relationships to ensure that these assumptions are reasonable and internally consistent. estimates of value changes can be compared with market value changes.APP. FIs with more complex risk profiles and measurement systems should have the model or calculations audited or validated by an independent source. on the particular market risk exposures created by holdings and activities. into their overall evaluation of capital adequacy. At large FIs. including re-pricing gaps. the BSP expects that a portion of capital will be allocated to cover this risk. and OBS positions in the accrual book are captured by the risk management systems. periodic comparisons of actual performance with forecasts may be sufficient. and whether senior management reviewed and approved key assumptions. these prices are often used to benchmark or check model assumptions. the BSP may require information regarding the market risk exposure of the FI.2 The frequency and extent to which an FI should re-evaluate its risk measurement methodologies and models depend. the pace and nature of market rate changes. (c) Data inputs are adequately specified (commensurate with the nature Key areas of review include the statistical methods that were used to generate scenarios and assumptions (if applicable). The review should also compare actual pricing spreads and balance sheet behavior to model assumptions.Page 16 Manual of Regulations for Non-Bank Financial Institutions . Q-43 06. FIs can compare projected net income results with actual earnings. When doing so. When performing these evaluations. The BSP will periodically evaluate the market risk measurement system for the accrual book to determine if the FI’s capital is adequate to support its exposure to market risk and whether the internal measurement systems of the FI are adequate. the BSP may require an FI to improve its system. and the pace and complexity of innovation with respect to measuring and managing market risk. capital has an important role to play in mitigating and supporting market risk. For some instruments. FIs must hold capital commensurate with the level of market risk they undertake. At smaller and less complex FIs. 1 Q Regulations Appendix Q-43 . If an FI’s internal measurement system does not adequately capture the level of market risk. (Circular No.Page 17 . and stable over time. Material changes to assumptions should be documented.31 and complexity of an FI’s holdings) with regard to rates. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-43 . re-pricing. properly documented. (d) The system’s assumptions (used to transform positions into cash flows) are reasonable. 544 dated 15 September 2006) This is especially important for assets and liabilities whose behavior differs markedly from contractual maturity or repricing.APP. and for new products. maturities. The output of the systems should be used in characterizing the level of market risk to senior management and board of directors. and approved by management.1 1 (e) Market risk measurement systems are integrated into the institution’s daily risk management practices. Q-43 06. and other details. justified.12. embedded options. APP. measure. The actual and potential level of liquidity risk posed by the FI’s products and services. In addition. 2. to liquidity risk. Adopt risk management practices whose sophistication and effectiveness is commensurate to the risk assumed. The BSP recognizes the liquidity risk inherent in FI activities and how these activities expose an FI to multiple risks which may increase liquidity risk. or through undue reliance on funding sources that may not be available in times of financial stress or adverse changes in market conditions. Further. is heavily influenced by their ability to manage liquidity.31 GUIDELINES ON LIQUIDITY RISK MANAGEMENT (Appendix to Sec. as affected by the cost of access to money markets and other alternative sources of funding. as well as react to changes in market conditions that affect the ability to quickly liquidate assets with minimal loss. FIs include banks. Innovations in investment and funding products. 4195P and 4195N) I. Q-44 06. 4195S. the BSP shall consider the FI’s current level and prospective sources of liquidity as compared to its funding needs. and 3. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-44 . from concentrated sources. 4. Statement of Policy For purposes of these guidelines. particularly financial organizations. Maintain capital commensurate with their risk exposures. NBFIs supervised by the BSP and their financial subsidiaries.Page 1 . growth in off-balance sheet activities and continuous competition for consumer funds have affected the way FI do business and intensified the need for proactive liquidity risk management. Practices should reflect the ability of the institution to manage unplanned changes in funding sources. The principles set forth in these guidelines shall be used to determine the level and trend of liquidity risk exposure and adequacy and effectiveness of an FI’s liquidity risk management process. 5. The BSP will not restrict risk-taking activities as long as FIs are authorized to engage in such activities and: 1. monitor and control the risk they assume. II. such as market and reputation risks. balance sheet structure and offbalance sheet activities. The reasonableness of liquidity risk limits and controls in relation to earnings. 4195Q. The adequacy and effectiveness of board and senior management oversight. In evaluating the adequacy of an FI’s liquidity position. 2. In evaluating the above parameters. the BSP shall consider the following factors: 1. measure and control the resulting liquidity risk exposures. the BSP will evaluate the adequacy of funds management practices relative to the FI’s size. FIs need to fully understand. and risk profile. fundsmanagement practices should ensure that liquidity is not consistently maintained at a high cost. Background The on-going viability of institutions. particularly the Board’s ability to recognize the effects of interrelated risk areas. complexity. The cost of an FI’s access to money markets and other alternative sources of funding. 3.12. In general. The diversification of funding sources (on and off-balance sheet). Understand. liquidity risk management practices should ensure that an institution is able to maintain a level of liquidity sufficient to meet its financial obligations in a timely manner and to fulfill the legitimate funding needs of its community. and capital. Liquidity Risk Management Process Liquidity risk management process should be tailored to an FI’s structure and scope of operations and application can vary across institutions. Monitor liquidity risk. Measure liquidity risk. 8. The adequacy of foreign currency liquidity management. timely. A relatively large organization with extensive scope of operations would generally require a more robust management information system to properly measure risk in a timely and comprehensive manner.12.31 6. In setting limits. 4. FIs are expected to measure their liquidity position on an ongoing basis. If an FI’s risk exposures are deemed excessive relative to the FI’s capital. diversify funding sources and adopt contingency funding plans. Monitoring reports should be frequent. 9. It involves determining the volume and trends of liquidity needs and the sources of liquidity available to meet these needs. The sophistication of liquidity risk management shall depend on the size. The adequacy of internal controls and audit of liquidity risk management process. Manual of Regulations for Non-Bank Financial Institutions . III. nature and complexity of an FI’s activities. the FI should recognize any legal distinctions and possible obstacles to cash flow movements among affiliates or across separate books. Adequate measurement systems enable FIs to quantify liquidity risk exposures on a per entity basis and across the consolidated organization. The appropriateness and reasonableness of contingency plans for handling liquidity crises. Control liquidity risk. Identify liquidity risk. portfolio and entity level. counterparties and set risk limits on a transactional. the BSP will direct the FI to reduce its exposure and/or strengthen its risk management system. in all instances. monitoring and management information systems. Identifying liquidity risk necessitates expressing the FI’s desired level of risk exposure based on its ability and willingness to assume risk which may primarily depend on the FI’s capital base and access to funds providers. An FI’s liquidity risk management system shall be assessed under the FI’s general risk management framework. 7. Lines of authority and accountability should be clearly defined to ensure liquidity risk exposures remain reasonable and within the risk tolerance expressed by the board. At a minimum. and accurate and should be distributed to appropriate levels of management. The adequacy of measurement methodologies. the process should: 1. Monitoring liquidity risk requires timely review of liquidity risk positions and exceptions. Q-44 06. 3. consistent with the guidelines on supervision by risk as set forth under Appendix Q-42. Liquidity risk identification should be a continuing process and should occur at both the transaction.APP. analyze net funding requirements under alternative scenarios. portfolio and aggregate/ consolidated basis to control liquidity risk. an FI’s liquidity risk management process should be consistent with its general risk management framework and should be commensurate with the level of risk assumed. Proper identification of liquidity risk requires that management understand both existing Q Regulations Appendix Q-44 . including day-to-day liquidity management. The FI should establish policies and standards on acceptable product types. 2.Page 2 risk and prospective risks from new products and activities. or that the risk assumed is not well managed. Regardless of the structure. However. activities. FIs face two (2) types of liquidity risk: funding liquidity risk and market liquidity risk. Finally. on the other hand. Definition of Liquidity Risk Liquidity risk is generally defined as the current and prospective risk to earnings or capital arising from an FI’s inability to meet its obligations when they come due without incurring unacceptable losses or costs. and 4. monitoring and management information system.31 IV.APP. the BSP shall consider how an FI address the four basic elements of a sound risk management system: 1. limits structure. The size of the bid/ask spread of instruments in a market provides a general indication of its depth. In addition. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Understanding market liquidity risk is particularly important for institutions with significant holdings of instruments traded in financial markets. Likewise. Market and liquidity risks are highly interrelated. This is synonymous with the general definition of liquidity risk. Comprehensive internal controls and independent audits Evaluation of the adequacy of the FI’s application of the above elements will be relative to the FI’s risk profile. FIs with less complex operations may generally use more basic practices while larger. and/or more complex institutions will be expected to adopt more formal and sophisticated practices. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-44 . market liquidity risk is associated with structured or complex investments as the market of potential buyers is typically small. 3. strategic. can likewise significantly affect an institution’s liquidity risk. Appropriate risk measurement methodologies. 2. and credit risks. refers to the risk that an institution cannot easily eliminate or offset a particular position because of inadequate liquidity in the market. Sound Liquidity Risk Management Practices When assessing an FI’s liquidity risk management system. It is therefore important that an FI’s liquidity risk management system is consistent with its general risk management framework. This could be the result of sharp price movement or jump in volatility. hence its liquidity. FIs are exposed to the risk of an unexpected and sudden erosion of market liquidity. Adequate risk management policies and procedures. an FI’s exposure to other risks such as reputation. particularly during times of uncertainty when there is a high correlation between the need for liquidity and market volatility. In terms of capital markets and trading activities. Market liquidity risk.12. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. Q-44 06. under normal circumstances. V. Funding liquidity risk refers to the inability to meet investment and funding requirements arising from cash flow mismatches without incurring unacceptable losses or costs. Active and appropriate board and senior management oversight. Market liquidity risk is also associated with the probability that large transactions may have a significant effect on market prices in markets that lack sufficient depth.Page 3 . Large organizations should likewise take a comprehensive perspective to measuring and controlling liquidity risk by understanding how subsidiaries and affiliates can raise or lower the consolidated risk profile. or internal to the FI such as that posed by a general loss of market confidence. APP. Q-44 06.12.31 A. Active and Appropriate Board and Senior Management Oversight1 Effective liquidity risk management requires that the Board and senior management be fully informed of the level of liquidity risk assumed by the FI and ensure that the activities undertaken are within the prescribed risk tolerance. Senior management should have a thorough understanding of how other risks such as credit, market, operational and reputation risks impact the FI’s overall liquidity strategy.1 Responsibilities of the board of directors The Board has the ultimate responsibility for understanding the nature and level of liquidity risk assumed by the FI and the processes used to manage it. The board of directors should: 1. Establish and guide the FI’s strategic direction and tolerance for liquidity risk by adopting a formal written liquidity/funding policy that specifies quantitative and qualitative targets; 2. Approve policies that govern or influence the FI’s liquidity risk, including reasonable risk limits and clear guidelines which are adequately documented and communicated to all concerned; 3. Identify the Senior Management staff who has the authority and responsibility for managing liquidity risk and ensure that this staff takes the necessary steps to monitor and control liquidity risk; 4. Monitor the FI’s performance and overall liquidity risk profile in a timely manner by requiring frequent reports that outline the liquidity position of the FI along with information sufficient to determine if the FI is complying with established risk limits; 5. Mandate and track the implementation of corrective action in instances of breaches in policies and procedures; 6. Establish, review and to the extent possible, test contingency plans for dealing with potential temporary and long-term liquidity disruptions; and 7. Ensure that the FI has sufficient competent personnel, including internal audit staff, and adequate measurement systems to effectively manage liquidity risk. Responsibilities of senior management Senior management is responsible for effectively executing the liquidity strategy and overseeing the daily and long-term management of liquidity risk. In managing the FI’s activities, Senior Management should: 1. Develop and implement procedures and practices that translate the Board’s goals, objectives, and risk tolerances into operating standards that are transmitted to and well understood by personnel. Operating standards should be consistent with the Board’s intent; 2. Plan for adequate sources of liquidity to meet current and potential funding needs and establish guidelines for the development of contingency funding plans; 3. Adhere to the lines of authority and responsibility that the Board has established for managing liquidity risk; 4. Oversee the implementation and maintenance of management information and other systems that identify, measure, monitor, and control the FI’s liquidity risk; and 5. Establish effective internal controls over the liquidity risk management process. In evaluating the quality of oversight provided by the Board and Senior 1 This section refers to a management structure composed of a board of directors and senior management. The BSP is aware that there may be differences in some FIs as regards the organizational framework and functions of the board of directors and senior management. For instance, branches of foreign banks have board of directors located outside of the Philippines and are overseeing multiple branches in various countries. In this case, “board-equivalent” committees are appointed. Owing to these differences, the notions of the board of directors and the senior management are used in these guidelines not to identify legal constructs but rather to label two decision-making functions within a FI. Q Regulations Appendix Q-44 - Page 4 Manual of Regulations for Non-Bank Financial Institutions APP. Q-44 06.12.31 Management, the BSP will evaluate how the Board and Senior Management carry out the above functions/responsibilities. Further, sound management practices are highly related to the quality of other areas/ elements of risk management system. Thus, even if Board and Senior Management exhibit active oversight, the FI’s policies, procedures, measurement methodologies, limits structure, monitoring and information systems, controls and audit should be adequate before quality of Board and Senior Management can be considered “satisfactory”. Lines of Responsibility and Authority Management of liquidity risk generally requires collaboration from various business areas of the FI, thus a clear delineation of responsibilities is necessary. The management structure should clearly define the duties of senior level committees, members of which have authority over the units responsible for executing liquidity-related transactions. There should be a clear delegation of dayto-day operating responsibilities to particular departments such as the Treasury Department. To ensure proper management of liquidity risk, the FI should designate an independent unit responsible for measuring, monitoring and controlling liquidity risk. Said unit should take a comprehensive approach and directly report to the board of directors or a committee thereof. B. Adequate risk management policies and procedures An FI’s liquidity risk policies and procedures should be comprehensive, clearly defined, documented and duly approved by the board of directors. Policies and procedures should cover the FI’s liquidity risk management system in order to provide appropriate guidance to management. These policies should be applied on a consolidated basis and, as appropriate, at the level of individual affiliates, especially when recognizing legal distinctions and possible obstacles to cash movements among affiliates. Liquidity risk policies should identify the quantitative parameters used by the FI to define the acceptable level of liquidity risk such as risk limits and financial ratios as well as describe the measurement tools and assumptions used. Qualitative guidelines should include description of the FI’s acceptable products and activities, including off-balance sheet transactions, desired composition of assets and liabilities, and approach towards managing liquidity in different currencies, geographies and across subsidiaries and affiliates. Where appropriate, a large FI should apply these policies on a consolidated basis to address risk exposures resulting from inter-connected funding structures and operations among members of an FI’s corporate group. It is essential that policies include the development of a formal liquidity risk measurement system that addresses business-as-usual scenarios and a contingency funding plan that addresses a variety of stress scenarios. FIs should likewise have specific procedures for addressing breaches in policies and implementation of corrective actions. Management should periodically review its liquidity risk policies and ensure that these remain consistent with the level and complexity of the FI’s operations. Policies should be updated to incorporate effects of new products/activities, changes in corporate structure and in light of its liquidity experience. C. Appropriate risk measurement methodologies, limits structure, monitoring, and management information system Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-44 - Page 5 APP. Q-44 06.12.31 Liquidity risk measurement models/ methodologies An FI should have a measurement system in place capable of quantifying and capturing the main sources of liquidity risk in a timely and comprehensive manner. Liquidity management requires ongoing measurement, from intra-day liquidity to long-term liquidity positions. Depending on its risk profile, an FI can use techniques of simple calculations, static simulations based on current holdings or sophisticated models. What is essential is that the FI should be able to identify and avoid potential funding shortfalls such that the FI can consistently meet investment, funding and/or strategic targets. FIs with simple operations can generally use a static approach to liquidity management. Static models are based on positions at a given point in time. While an exact definition of “simple operations” will not be provided, the BSP expects that banks using a static approach to liquidity management would limit their operations to core banking activities such as accepting plain vanilla deposits and making traditional loans. Such banks would not have active Treasury Departments, would not hold or offer structured products and would not be exposed to significant levels of FX risk. Board reporting could be less frequent than in more complex banks but in no event should be less than quarterly. Complex FIs, on the other hand, will be expected to adopt more robust approaches such as a dynamic maturity/ liquidity gap reporting or even simulation modeling. At a minimum, universal banks should use maximum cash outflow/ liquidity or maturity gap models. FIs engaged in holding or offering significant levels of structured products and/or derivatives will be expected to have the capability to model the cash flows from these instruments under a variety of scenarios. Specifically, scenarios should be Q Regulations Appendix Q-44 - Page 6 designed to measure the effects of a breach of the triggers (strike price) on these instruments. Where the FI’s organizational structure and business practices indicate cash flow movements and liquidity support among corporate group members, the FI should adopt consolidated risk measurement tools to help management assess the group’s liquidity risk exposure. Depending on the degree of inter-related funding, noncomplex measurement and monitoring systems may be acceptable. However, large, complex FIs that display a high degree of inter-related and inter-dependent funding will be expected to utilize more sophisticated monitoring and management systems. These systems should enable the Board of the consolidated entity to simulate and anticipate the funding needs of the FIs on both a consolidated basis and in each of its component parts. Liquidity risk measurement methodologies/models should be documented and approved by the board and should be periodically independently reviewed for reasonableness and tested for accuracy and data integrity. Assumptions used in managing liquidity should be periodically revisited to ensure that these remain valid. Liquidity models require projecting all relevant cash flows. As such, FIs engaged in complex activities should have the capability to model the behavior of all assets, liabilities, and off-balance sheet items both under normal/business-as usual and a variety of stressed conditions. Stressed conditions may include liquidity crisis confined within the institution, or a systemic liquidity crisis, in which all FIs are affected. For FIs operating in a global environment, cash flow projections should reflect various foreign-currency funding requirements. When projecting cash flows, management should also estimate Manual of Regulations for Non-Bank Financial Institutions APP. Q-44 06.12.31 customer behavior in addition to contractual maturities. Many cash flows are uncertain and may not necessarily follow contractual maturities. Cash flows may be influenced by interest rates and customer behavior, or may simply follow a seasonal or cyclical pattern. When modeling liquidity risk, it is important that assumptions be documented. Assumptions should be reasonable and should be based on past experiences or with consideration of the potential impact of changes in business strategies and market conditions. Measurement tools should include a sufficient number of time bands to enable effective monitoring of both short- and longterm exposures. This expectation applies not only to complex simulation modeling, but to the construction of simple liquidity GAP models as well. To sufficiently measure an FI’s liquidity risk, management should analyze how its liquidity position is affected by changes in internal (company-specific) and external (market-related) conditions. Management will need to assess how a shift from a normal scenario to various levels of liquidity crisis can affect its ability to source external funds and at what cost, liquidate certain assets at expected prices within expected timeframes, or hasten the need to settle obligations (e.g., limited ability to roll-over deposits). Management should, at a minimum, consider stress scenarios where securities are sold at prices lower than anticipated and credit lines are partially or wholly cancelled. Regardless of the liquidity risk models used, an FI should adopt an appropriate contingency plan for handling liquidity crisis. Well before a liquidity crisis occurs, management should carefully plan how to handle administrative matters in a crisis. Management credibility, which is essential to maintaining the public’s confidence and access to funding, can be gained or lost depending on how well or poorly some administrative matters are handled. A contingency funding/liquidity plan ensures that an FI is ready to respond to liquidity crisis. The sophistication of a contingency plan should be commensurate with the FI’s complexity and risk exposure, activities, products and organizational structure. The plan should identify the types of events that will trigger the contingency plan, quantify potential funding needs and sources and provide the specific administrative policies and procedures to be followed in a liquidity crisis. Specifically, the contingency plan should: 1. Clearly identify, quantify and rank all sources of funding by preference including, but not limited to: • Reducing assets • Modifying the liability structure or increasing liabilities • Using off-balance-sheet sources, such as securitizations • Using other alternatives for controlling balance sheet changes 2. Consider asset and liability strategies for responding to liquidity crisis including, but not limited to: • Whether to liquidate surplus money market assets • When (if at all) HTM securities might be liquidated • Whether to sell liquid securities in the repo markets • When to sell longer-term assets, fixed assets, or certain lines of business • Coordinating lead bank funding with that of the FI’s other banks and nonbank affiliates • Developing strategies on how to interact with non-traditional funding sources (e.g., whom to contact, what type of information and how much detail should be provided, who will be available for further questions, and how to ensure that communications are consistent) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-44 - Page 7 APP. Q-44 06.12.31 3. Address administrative policies and procedures that should be used during a liquidity crisis: • The responsibilities of Senior Management during a funding crisis • Names, addresses, and telephone numbers of members of the crisis team • Where, geographically, team members will be assigned • Who will be assigned responsibility to initiate external contacts with regulators, analysts, investors, external auditors, press, significant customers, and others • How internal communications will flow between management, ALCO, investment portfolio managers, traders, employees, and others • How to ensure that the ALCO receives management reports that are pertinent and timely enough to allow members to understand the severity of the FI’s circumstances and to implement appropriate responses. The above outline of the scope of a good contingency plan is by no means exhaustive. FIs should devote significant time and consideration to scenarios that are most likely, given their activities. Regardless of the strategies employed, an FI should consider the effects of such strategies on long-term liquidity positions and take appropriate actions to ensure that level of risk exposures shall remain or be brought down within the risk tolerance of the Board. Limits structure The board and senior management should establish limits on the nature and amount of liquidity risk they are willing to assume. In setting limits, management should consider the nature of the FI’s strategies and activities, its past performance, the level of earnings and capital available to absorb potential losses and costs of an FI’s access to money markets and other alternative sources of funding. Q Regulations Appendix Q-44 - Page 8 Limits can take various forms. FIs should address limits on types of funding sources and uses of funds, including offbalance sheet positions. In addition, policies should set targets for minimum holdings of liquid assets relative to liabilities. Complex FIs, or FIs engaged in complex activities should set maximum cumulative cash-flow mismatches over particular time horizons and establish counterparty limits. Such limits should be applied to all currencies to which the FI has a significant exposure. In particular, FIs should take into consideration any legal distinctions and possible obstacles to cash flow movements between the Regular Banking Unit (RBU) and the FCDU. When evaluating a bank’s liquidity position, the BSP will consider low levels of liquid assets relative to liabilities, and significant negative funding gaps to be indicative of high liquidity risk exposure. Further, negative cash-flow mismatches in the short term time buckets will receive heightened scrutiny by the BSP and should also receive the attention of senior management and the board of directors. Before accepting negative funding gaps, or setting limits that allow negative funding gaps, the board and senior management should consider the FI’s ability to fund these negative gaps. Factors include, but are not limited to: the availability of on-balance sheet liquidity, the amount of firm credit lines available from commercial sources that can be drawn to fund the shortfall, and the amount of unencumbered on-balance sheet assets that can be sold without excessive loss and in a reasonable time-frame. Further, actual positions and limits should reflect the outcome of possible stress scenarios caused by internal and external factors, particularly those related to reputation risk. Stress scenarios should consider the possibility that securities may be sold at a greater discount and/or may take more time to sell than expected or Manual of Regulations for Non-Bank Financial Institutions APP. Q-44 06.12.31 that credit lines and other off-balance sheet sources of funding may be cancelled or may be unavailable at reasonable cost. Management should define specific procedures for the prompt reporting and documentation of limit exceptions and the management approval and action required in such cases. Liquidity risk monitoring and reporting An adequate management information system is critical in the risk monitoring process. The system should be able to provide the Board, senior management and other personnel with timely information on the FI’s liquidity position in all the major currencies it deals in, on an individual and aggregate basis, and for various time periods. Effective liquidity risk monitoring requires frequent routine liquidity reviews and more in-depth and comprehensive reviews on a periodic basis. In general, monitoring should include sufficient information and a clear presentation such that the reader can determine the FI’s ongoing degree of compliance with risk limits. For example, reports should address funding concentrations, funding costs, projected funding needs and available funding sources. Monitoring and board reporting should be robust. It is not unreasonable to expect complex FIs or FIs engaged in complex activities to monitor liquidity on a daily basis. Board reporting should be no less frequent than monthly. However, the BSP would expect Board-level committees or sub-committees to receive more frequent reporting. Comprehensive and accurate internal reports analyzing an FI’s liquidity risk should be regularly prepared and reviewed by senior management and submitted to the board of directors. D. Risk controls and audit An FI should have adequate internal controls in place to protect the integrity of its liquidity risk management process. Fundamental to the internal control system is for the Board to prescribe independent reviews to evaluate the effectiveness of the risk management system and check compliance with established limits, policies and procedures. An effective system of internal controls for liquidity risk includes: 1. A strong internal control environment; 2. An adequate process for identifying and evaluating liquidity risk; 3. Adequate information systems; and 4. Continual review of adherence to established policies and procedures. To ensure that risk management objectives are achieved, management needs to focus on the following areas: appropriate approval processes, limits monitoring, periodic reporting, segregation of duties, restricted access to information systems and the regular evaluation and review by independent competent personnel. Internal audit reviews should cover all aspects of the liquidity risk management process, including determining the appropriateness of the risk management system, accuracy and completeness of measurement models, reasonableness of assumptions and stress testing methodology. Audit staff should have the skills commensurate with the sophistication of the FI’s risk management systems. Audit results should be promptly reported to the board. Deficiencies should be addressed in a timely manner and monitored until resolved/corrected. currency liquidity E. Foreign management The principles described in this Appendix also apply to the management Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-44 - Page 9 APP. Q-44 06.12.31 of any foreign currency to which the FI maintains a significant exposure. Specifically, management should ensure that its measurement, monitoring and control systems account for these exposures as well. Management needs to set and regularly review limits on the size of its cash flow mismatches for each significant individual currency and in aggregate over appropriate time horizons. In addition, an FI should Q Regulations Appendix Q-44 - Page 10 consider effects of other risk areas, particularly settlement risks from its offbalance sheet activities. An FI should also conservatively assess its access to foreign exchange markets when setting up its risk limits. As with overall liquidity risk management, foreign currency liquidity should be analyzed under various scenarios, including stressful conditions. (Circular No. 545 dated 15 September 2006) Manual of Regulations for Non-Bank Financial Institutions APP. Q-45 07.12.31 AUTHORIZATION FORM FOR QUERYING THE BSP WATCHLIST FILES FOR SCREENING APPLICANTS AND CONFIRMING APPOINTMENTS OF DIRECTORS AND OFFICIALS (Appendix to Subsecs. 4143Q.5, 4143S.6, 4143P.6 and 4143N.6) AUTHORIZATION I, , after being sworn in accordance with law, do hereby authorize the following, pursuant to the provisions of Subsecs. 4143Q.5(c), 4143S.6(c), 4143P.6(c) and 4143N.6(c) of the MORNBFI: (Name of NBFI) to conduct a background investigation on myself a) relative to my application for or appointment to the position of (position) in (Name of NBFI) which include, among others, inquiring from the Watchlist Files of the BSP; and b) The BSP to disclose its findings pertinent to the aforementioned inquiry on the said watchlist files to (Name of NBFI) . With the above authorization, I hereby waive my right to the confidentiality of the information that will be obtained as a result of the said inquiry, provided that disclosure of said information will be limited for the purpose of ascertaining my qualification or nonqualification for the said position. IN WITNESS WHEREOF, I have hereunto set my hand this ________________. ______________________________ (Signature Over Printed Name) SIGNED IN THE PRESENCE OF: ________________________ (Witness) Manual of Regulations for Non-Bank Financial Institutions ________________________ (Witness) Q Regulations Appendix Q-45 - Page 1 APP. Q-45 07.12.31 ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES } S.S. _________________CITY } BEFORE ME, this ___ day of _________________200___ in __________________ personally appeared the following person: Name Community Tax Certificate Place Date known to me to be the same person who executed the foregoing instrument and he acknowledged to me to be the same person who executed the foregoing instrument and he acknowledged to me that the same is his free act and deed. This instrument, consisting of two (2) pages, including the page on which this acknowledgment is written, has been signed on the left margin of each and every page thereof by __________________, and his witnesses, and sealed with my notarial seal. IN WITNESS WHEREOF, I have hereunto set my hand, the day, year and place above written. Notary Public Doc. No.: __________ Page No.: __________ Book No.: __________ Series of 200___ (As amended by CL-2007-001 dated 04 January 2007 and CL-2006-046 dated 21 December 2006) Q Regulations Appendix Q-45 - Page 2 Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 RISK-BASED CAPITAL ADEQUACY FRAMEWORK FOR THE PHILIPPINE BANKING SYSTEM (Appendix to Sec. 4116Q) Introduction This Appendix outlines the BSP implementing guidelines of the revised International Convergence of Capital Measurement and Capital Standards, or popularly known as Basel II. Basel II is the new international capital standards set by the Basel Committee on Banking Supervision (BCBS)1. It aims to replace Basel I, which was issued in 1988 with an amendment in 1996, to make the risk-based capital framework more risk-sensitive. Banks are enjoined to submit their group-wide (including subsidiary banks and QBs) Basel II implementation plans from 2007-2010, not later than 31 December 2006. The guidelines contained in this Appendix shall take effect on 1 July 2007. (As amended by M-2006-022 dated 24 November 2006) Part I. Risk-based capital adequacy ratio 1. The risk-based CAR of UBs and KBs and their subsidiary banks and QBs, expressed as a percentage of qualifying capital to risk-weighted assets, shall not be less than ten percent (10%). 2. Qualifying capital is computed in accordance with the provisions of Part II. Risk-weighted assets is the sum of (1) credit risk-weighted assets (Parts III, IV, and V), (2) market risk-weighted assets (Parts IV and VI), and (3) operational risk-weighted assets (Part VII). 3. The CAR requirement will be applied to all UBs and KBs and their subsidiary banks, and QBs on both solo and consolidated bases. The application of the requirement on a consolidated basis is the best means to preserve the integrity of capital in banks with subsidiaries by eliminating double gearing. However, as one of the principal objectives of supervision is the protection of depositors, it is essential to ensure that capital recognized in capital adequacy measures is readily available for those depositors. Accordingly, individual banks should likewise be adequately capitalized on a stand-alone basis. 4. To the greatest extent possible, all banking and other relevant financial activities (both regulated and unregulated) conducted by a bank and its subsidiaries will be captured through consolidation. Thus, majority-owned or -controlled financial allied undertakings should be fully consolidated on a line by line basis. Exemptions from consolidation shall only be made in cases where such holdings are acquired through debt previously contracted and held on a temporary basis, are subject to different regulation, or where non-consolidation for regulatory capital purposes is otherwise required by law. All cases of exemption from consolidation must be made with prior clearance from the BSP. 5. Banks shall comply with the minimum CAR at all times notwithstanding that supervisory reporting shall only be on quarterly basis. Any breach, even if only temporary, shall be reported to the bank’s Board of Directors and to BSP, SES within three (3) banking days. For this purpose, banks shall develop an appropriate system to properly monitor their compliance. 6. The BSP reserves the right, upon authority of the Deputy Governor,SES, to 1 The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States. It usually meets at the Bank for International Settlements in Basel, Switzerland where its permanent Secretariat is located. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 1 APP. Q-46 08.12.31 conduct on-site inspection outside of regular or special examination, for the purpose of ascertaining the accuracy of CAR calculations as well as the integrity of CAR monitoring and reporting systems. Part II. Qualifying capital 1. Qualifying capital consists of Tier 1 (core plus hybrid) capital and Tier 2 (supplementary) capital elements, net of required deductions from capital. A. Tier 1 Capital 2. Tier 1 capital is the sum of core Tier 1 capital and allowable amount of hybrid Tier 1 capital, as set in paragraph 12. 3. Core Tier 1 capital consists of: a) Paid-up common stock; b) Paid-up perpetual and noncumulative preferred stock; c) Additional paid-in capital; d) Retained earnings; e) Undivided profits (for domestic banks only); f) Net gains on fair value adjustment of hedging instruments in a cash flow hedge of available for sale equity securities; g) Cumulative foreign currency translation; and h) Minority interest in subsidiary financial allied undertakings which are less than wholly-owned: Provided, That a bank shall not use minority interests in the equity accounts of consolidated subsidiaries as avenue for introducing into its capital structure elements that might not otherwise qualify as Tier 1 capital or that would, in effect, result in an excessive reliance on preferred stock within Tier 1: Less: i. Common stock treasury shares; ii. Perpetual and non-cumulative preferred stock treasury shares; iii. Net unrealized losses on available for sale equity securities purchased; iv. Gains (Losses) resulting from designating financial liabilities at fair value Q Regulations Appendix Q-46 - Page 2 through profit or loss that are due to own credit worthiness; v. Unbooked valuation reserves and other capital adjustments based on the latest report of examination as approved by the Monetary Board; vi. Total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI and unsecured loans, other credit accommodations and guarantees granted to subsidiaries and affiliates; vii. Deferred income tax; viii.Goodwill, including that relating to unconsolidated subsidiary banks, financial allied undertakings, excluding subsidiary securities dealers/brokers and insurance companies, (on solo basis) and unconsolidated subsidiary securities dealers/brokers, insurance companies and non-financial allied undertakings (on solo and consolidated bases); and ix. Gain on sale resulting from a securitization transaction. 4. Hybrid Tier 1 capital in the form of perpetual preferred stock and perpetual UnSD may be issued subject to prior BSP approval and to the conditions in paragraph 12. 5. In the case of foreign banks, Tier 1 capital is equivalent to: a) Assigned capital including earnings not remitted to the head office which the bank elects to consider as part of assigned capital (in which case it can no longer be remitted to the head office); and b) “Net due to” head office, branches, subsidiaries and other offices outside the Philippines as defined under Subsec. X121.5.d (inclusive of earnings not remitted to head office per Subsec. X121.5.c, unless considered as part of the assigned capital by the bank), subject to the limit prescribed under Subsec. X121.6, Less: i. Any balance in the “Net due from” account. (As amended by Circular No. 560 dated 11 January 2007) Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 B. Tier 2 Capital 6. Tier 2 capital is the sum of upper Tier 2 capital and lower Tier 2 capital. 7. The total amount of lower Tier 2 (LT2) capital before deductions enumerated in paragraph 10 that may be included in total Tier 2 capital shall be limited to a maximum of fifty percent (50%) of total Tier 1 capital (net of deductions enumerated in paragraph 3). The total amount of upper and lower Tier 2 capital both before deductions enumerated in paragraph 10 that may be included in total qualifying capital shall be limited to a maximum of 100% of total Tier 1 capital (net of deductions enumerated in paragraph 3). 8. Upper Tier 2 capital consists of: a) Paid-up perpetual and cumulative preferred stock; b) Paid-up limited life redeemable preferred stock issued with the condition that redemption thereof shall be allowed only if the shares redeemed are replaced with at least an equivalent amount of newly paid-in shares so that the total paidin capital stock is maintained at the same level prior to redemption; c) Appraisal increment reserve – bank premises, as authorized by the Monetary Board; d) Net unrealized gains on available for sale equity securities purchased subject to a fifty five percent (55%) discount; e) General loan loss provision, limited to a maximum of one percent (1%) of credit risk-weighted assets, and any amount in excess thereof shall be deducted from the credit risk-weighted assets in computing the denominator of the risk-based capital ratio; f) With prior BSP approval, UnSD with a minimum original maturity of at least ten (10) years issued subject to the conditions in paragraph 13, in an amount equivalent to its carrying amount discounted by the following rates: Remaining maturity 5 years & above 4 years to <5 years 3 years to <4 years 2 years to <3 years 1 year to <2 years < 1 year Discount factor 0% 20% 40% 60% 80% 100% g) Deposit for common stock subscription; h) Deposit for perpetual and noncumulative preferred stock subscription; and i) Hybrid Tier 1 capital as defined in paragraph 4 in excess of the maximum allowable limit of fifteen percent (15%) of total Tier 1 capital (net of deductions enumerated in paragraph 3): Less: i. Perpetual and cumulative preferred stock treasury shares; ii. Limited life redeemable preferred stock treasury shares with the replacement requirement upon redemption; iii. Sinking fund for redemption of limited life redeemable preferred stock with the replacement requirement upon redemption; and iv. Net losses in fair value adjustment of hedging instruments in a cash flow hedge of available for sale equity securities. 9. LT2 capital consists of: a) Paid-up limited life redeemable preferred stock without the replacement requirement upon redemption in an amount equivalent to its carrying amount discounted by the following rates: Remaining maturity 5 years & above 4 years to <5 years 3 years to <4 years 2 years to <3 years 1 year to <2 years < 1 year Discount factor 0% 20% 40% 60% 80% 100% b) With prior BSP approval, UnSD with a minimum original maturity of at Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 3 APP. Q-46 08.12.31 least five (5) years, issued subject to the conditions in paragraph 14, in an amount equivalent to its carrying amount discounted by the following rates: Remaining maturity 5 years & above 4 years to <5 years 3 years to <4 years 2 years to <3 years 1 year to <2 years < 1 year Discount factor 0% 20% 40% 60% 80% 100% c) Deposit for perpetual and cumulative preferred stock subscription; and d) Deposit for limited life redeemable preferred stock subscription with the replacement requirement upon redemption. Less: i. Limited life redeemable preferred stock treasury shares without the replacement requirement upon redemption; and ii. Sinking fund for redemption of limited life redeemable preferred stock without the replacement requirement upon redemption up to the extent of the balance of redeemable preferred stock after applying the cumulative discount factor. C. Deductions from the total of Tier 1 and Tier 2 capital 10. The following items should be deducted fifty percent (50%) from Tier 1 and fifty percent (50%) from Tier 2 capital: a) Investments in equity of unconsolidated subsidiary banks and QBs, and other financial allied undertakings (excluding subsidiary securities dealers/ brokers and insurance companies), after deducting related goodwill, if any (for solo basis); b) Investments in other regulatory capital instruments of unconsolidated subsidiary banks and QBs (for solo basis); Q Regulations Appendix Q-46 - Page 4 c) Investments in equity of unconsolidated subsidiary securities dealers/brokers, insurance companies, and non-financial allied undertakings, after deducting related goodwill, if any (for both solo and consolidated bases); d) Capital shortfalls of unconsolidated subsidiary securities dealers/brokers and insurance companies (for both solo and consolidated bases); e) Significant minority investments (20%-50% of voting stock) in banks and QBs, and other financial allied undertakings (for both solo and consolidated bases); f) Reciprocal investments in equity of other banks/enterprises; g) Reciprocal investments in other regulatory capital instruments of other banks and QBs; h) Materiality thresholds in credit derivative contracts purchased; i) Securitization tranches which are rated below investment grade or are unrated; and j) Credit enhancing interest only strips in relation to a securitization structure, net of the amount of “gain-on-sale” that must be deducted from core Tier 1 capital referred to in paragraph 3. 11. Any asset deducted from qualifying capital in computing the numerator of the risk-based capital ratio shall not be included in the risk-weighted assets in computing the denominator of the ratio. Available for sale debt securities shall be risk-weighted net of specific provisions as provided in paragraph 1 of Part III.A, but without considering accumulated market gains/ losses. D. Eligible instruments under hybrid Tier 1 capital 12. Perpetual preferred stock and perpetual UnSD issuances of banks should comply with the following minimum conditions in order to be eligible as hybrid Tier 1 (HT1) capital: Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 a) It must be issued and fully paid-up. Only the net proceeds received from the issuance shall be included as capital; b) The dividends/coupons must be non-cumulative. It is acceptable to pay dividends/coupons in scrip or shares of stock if a cash dividend/coupon is withheld: Provided, That this does not result on issuing lower quality capital: Provided, further, That where such dividend/coupon stock settlement feature is included, the bank should ensure that it has an appropriate buffer of authorized capital stock and appropriate stockholders and board authorization, if necessary, to fulfill their potential obligations under such issues; c) It must be available to absorb losses of the bank without it being obliged to cease carrying on business. The agreement governing its issuance should specifically provide for the dividend/ coupon and principal to absorb losses where the bank would otherwise be insolvent, or for its holders to be treated as if they were holders of a specified class of share capital in any proceedings commenced for the winding up of the bank. Issue documentation must disclose to prospective investors the manner by which the instrument is to be treated in loss situation. Alternatively, the agreement governing its issuance can provide for automatic conversion into common shares or perpetual and non-cumulative preferred shares upon occurrence of certain trigger events, as follows: i. Breach of minimum capital ratio; ii. Commencement of proceedings for winding up of the bank; or iii. Upon appointment of receiver for the bank. The rate of conversion must be fixed at the time of subscription to the instrument. The bank must also ensure that it has appropriate buffer of authorized capital stock and appropriate stockholders and board authorization for conversion/ issue to take place anytime; d) Its holders must not have a priority claim, in respect of principal and dividend/ coupon payments in the event of winding up of the bank, which is higher than or equal with that of depositors, other creditors of the bank and holders of LT2 and UT2 capital instruments. Its holder must waive his right to set-off any amount he owes the bank against any subordinated amount owed to him due to the HT1 capital instrument; e) It must neither be secured nor covered by a guarantee of the issuer or related party or other arrangement that legally or economically enhances the priority of the claim of any holder as against depositors, other creditors of the bank and holders of LT2 and UT2 capital instruments; f) It must not be redeemable at the initiative of the holder. It must not be repayable without the prior approval of the BSP: Provided, That repayment may be allowed only in connection with call option after a minimum of five (5) years from issue date: Provided, however, That a call option may be exercised within the first five (5) years from issue date when – i. It was issued for the purpose of a merger with or acquisition by the bank and the merger or acquisition is aborted; ii. There is a change in tax status of the HT1 capital instrument due to changes in the tax laws and/or regulations; or iii. It does not qualify as HT1 capital as determined by the BSP: Provided, further, That such repayment shall be approved by the BSP only if the preferred share/debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue, unless the bank’s capital ratio remains more than adequate after redemption. It must not contain any clause which requires acceleration of payment of Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 5 APP. Q-46 08.12.31 principal, except in the event of insolvency. The agreement governing its issuance must not contain any provision that mandates or creates an incentive for the bank to repay the outstanding principal of the instrument, e.g., a cross-default or negative pledge or a restrictive covenant, other than a call option which may be exercised by the bank; g) Its main features must be publicly disclosed by annotating the same on the instrument and in a manner that is easily understood by the investor; h) The proceeds of the issuance must be immediately available without limitation to the bank; i) The bank must have full discretion over the amount and timing of dividends/ coupons where the bank – i. Has not paid or declared a dividend on its common shares in the preceding financial year; or ii. Determines that no dividend is to be paid on such shares in the current financial year. The bank must have full control and access to waived payments; j) Any dividend/coupon to be paid must be paid only to the extent that the bank has profits distributable determined in accordance with existing BSP regulations. The dividend/coupon rate, or the formulation for calculating dividend/ coupon payments must be fixed at the time of issuance and must not be linked to the credit standing of the bank; k) It may allow only one (1) moderate step-up in the dividend/coupon rate in conjunction with a call option, only if the step-up occurs at a minimum of ten (10) years after the issue date and if it results in an increase over the initial rate that is not more than: i. 100 basis points less the swap spread between the initial index basis and the stepped-up index basis; or ii. fifty percent (50%) of the initial credit spread less the swap spread between Q Regulations Appendix Q-46 - Page 6 the initial index basis and the stepped-up index basis. The swap spread should be fixed as of the pricing date and reflect the differential in pricing on that date between the initial reference security or rate and the steppedup reference security or rate. l) It must be underwritten by a third party not related to the issuer bank nor acting in reciprocity for and in behalf of the issuer bank; m) It must be issued in minimum denominations of at least P500,000.00 or its equivalent; n) It must clearly state on its face that it is not a deposit and is not insured by the PDIC; and o) The bank must submit a written external legal opinion that the abovementioned requirements, including the subordination and loss absorption features, have been met: Provided, That for purposes of reserve requirement regulation, it shall not be treated as time deposit liability, deposit substitute liability or other forms of borrowings: Provided, further, That the total amount of HT1 capital that may be included in the Tier 1 capital shall be limited to a maximum of fifteen percent (15%) of total Tier 1 capital (net of deductions enumerated in paragraph 3): Provided, furthermore, That the amount of HT1 capital in excess of the maximum limit shall be eligible for inclusion in the UT2 capital, subject to the limit in total Tier 2 capital. To determine the allowable amount of HT1 capital, the amount of total core Tier 1 capital (net of deductions enumerated in paragraph 3) should be multiplied by seventeen and sixty five percent (17.65%), the number derived from the proportion of fifteen percent (15%) to eighty five percent (85%), i.e., 15%/85% = 17.65%. E. Eligible unsecured subordinated debt 13. UnSD issuances by banks should comply with the following minimum Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 conditions in order to be eligible as UT2 capital: a) It must be issued and fully paid-up. Only the net proceeds received from the issuance shall be included as capital; b) It must be available to absorb losses of the bank without it being obliged to cease carrying on business. The agreement governing its issuance should specifically provide for the coupon and principal to absorb losses where the bank would otherwise be insolvent, or for its holders to be treated as if they were holders of a specified class of share capital in any proceedings commenced for the winding up of the bank. Issue documentation must disclose to prospective investors the manner by which the instrument is to be treated in loss situation. Alternatively, the agreement governing its issuance can provide for automatic conversion into common shares or perpetual and non-cumulative shares or perpetual and cumulative preferred shares upon occurrence of certain trigger events, as follows: i. Breach of minimum capital ratio; ii. Commencement of proceedings for winding up of the bank; or iii. Upon appointment of receiver for the bank. The rate of conversion must be fixed at the time of subscription to the instrument. The bank must also ensure that it has appropriate buffer of authorized capital stock and appropriate stockholders and board authorization for conversion/ issue to take place anytime; c) Its holders must not have priority claim, in respect of principal and coupon payments in the event of winding up of the bank, which is higher than or equal with that of depositors, other creditors of the bank, and holders of LT2 capital instruments. Its holder must waive his right to set off any amount he owes the bank against any subordinated amount owed to him due to the UT2 capital instrument; d) It must neither be secured nor covered by a guarantee of the issuer or related party or other arrangement that legally or economically enhances the priority of the claim of any holder as against depositors, other creditors of the bank and holders of LT2 capital instruments; e) It must not be redeemable at the initiative of the holder. It must not be repayable prior to maturity without the prior approval of the BSP: Provided, That repayment may be allowed only in connection with a call option after a minimum of five (5) years from issue date: Provided, however, That a call option may be exercised within the first five (5) years from issue date when: i. It was issued for the purpose of a merger with or acquisition by the bank and the merger or acquisition is aborted; ii. There is a change in tax status of the UT2 capital instrument due to changes in the tax laws and/or regulations; or iii. It does not qualify as UT2 capital as determined by the BSP: Provided, further, That such repayment prior to maturity shall be approved by the BSP only if the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue, unless the bank’s capital ratio remains more than adequate after redemption. It must not contain any clause which requires acceleration of payment of principal, except in the event of insolvency. The agreement governing its issuance must not contain any provision that mandates or creates an incentive for the bank to repay the outstanding principal of the instrument, e.g., a cross-default or negative pledge or a restrictive covenant, other than a call option which may be exercised by the bank; f) Its main features must be publicly disclosed by annotating the same on the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 7 APP. Q-46 08.12.31 instrument and in a manner that is easily understood by the investor; g) The proceeds of the issuance must be immediately available without limitation to the bank; h) The bank must have the option to defer any coupon payment where the bank: i. has not paid or declared a dividend on its common shares in the preceding financial year; or ii. determines that no dividend is to be paid on such shares in the current financial year; It is acceptable for the deferred coupon to bear interest but the interest rate payable must not exceed market rates; i) The coupon rate, or the formulation for calculating coupon payments must be fixed at the time of issuance and must not be linked to the credit standing of the bank; j) It may allow only one (1) moderate step-up in the coupon rate in conjunction with a call option, only if the step-up occurs at a minimum of ten (10) years after the issue date and if it results in an increase over the initial rate that is not more than: i. 100 basis points less the swap spread between the initial index basis and the stepped-up index basis; or ii. fifty percent (50%) of the initial credit spread less the swap spread between the initial index basis and the stepped-up index basis. The swap spread should be fixed as of the pricing date and reflect the differential in pricing on that date between the initial reference security or rate and the steppedup reference security or rate; k) It must be underwritten by a third party not related to the issuer bank nor acting in reciprocity for and in behalf of the issuer bank; l) It must be issued in minimum denominations of at least P500,000.00 or its equivalent; Q Regulations Appendix Q-46 - Page 8 m) It must clearly state on its face that it is not a deposit and is not insured by the PDIC; and n) The bank must submit a written external legal opinion that the abovementioned requirements, including the subordination and loss absorption features, have been met: Provided, That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.e., twenty percent (20%) if the remaining life is four (4) years to less than five (5) years, forty percent (40%) if the remaining life is three (3) years to less than four (4) years, etc.]: Provided, further, That where it is denominated in a foreign currency, it shall be revalued in accordance with PAS 21: Provided, furthermore, That for purposes of reserve requirement regulation, it shall not be treated as time deposit liability, deposit substitute liability or other forms of borrowings. 14. UnSD issuances by banks should comply with the following minimum conditions in order to be eligible as LT2 capital: a) It must be issued and fully paid-up. Only the net proceeds received from the issuance shall be included as capital; b) Its holders must not have priority claim, in respect of principal and coupon payments in the event of winding up of the bank, which is higher than or equal with that of depositors and other creditors of the bank. Its holder must waive his right to set-off any amount he owes the bank against any subordinated amount owed to him due to the LT2 capital instrument; c) It must neither be secured nor covered by a guarantee of the issuer or related party or other arrangement that legally or economically enhances the priority of the claim of any holder as against depositors and other creditors of the bank; d) It must not be redeemable at the initiative of the holder. It must not be Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 repayable prior to maturity without the prior approval of the BSP: Provided, That repayment may be allowed only in connection with a call option after a minimum of five (5) years from issue date: Provided, however, That a call option may be exercised within the first five (5) years from issue date when: i. It was issued for the purpose of a merger with or acquisition by the bank and the merger or acquisition is aborted; ii. There is a change in tax status of the LT2 capital instrument due to changes in the tax laws and/or regulations; or iii. It does not qualify as LT2 capital as determined by the BSP: Provided, further, That such repayment prior to maturity shall be approved by the BSP only if the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue, unless the bank’s capital ratio remains more than adequate after redemption. It must not contain any clause which requires acceleration of payment of principal, except in the event of insolvency. The agreement governing its issuance must not contain any provision that mandates or creates an incentive for the bank to repay the outstanding principal of the instrument, e.g., a cross-default or negative pledge or a restrictive covenant, other than a call option which may be exercised by the bank; e) Its main features must be publicly disclosed by annotating the same on the instrument and in a manner that is easily understood by the investor; f) The proceeds of the issuance must be immediately available without limitation to the bank; g) The coupon rate, or the formulation for calculating coupon payments must be fixed at the time of issuance and must not be linked to the credit standing of the bank; h) It may allow only one (1) moderate step-up in the coupon rate in conjunction with a call option, only if the step-up occurs at a minimum of five (5) years after the issue date and if it results in an increase over the initial rate that is not more than: i. 100 basis points less the swap spread between the initial index basis and the stepped-up index basis; or ii. fifty percent (50%) of the initial credit spread less the swap spread between the initial index basis and the stepped-up index basis. The swap spread should be fixed as of the pricing date and reflect the differential in pricing on that date between the initial reference security or rate and the stepped-up reference security or rate; i) It must be underwritten by a third party not related to the issuer bank nor acting in reciprocity for and in behalf of the issuer bank; j) It must be issued in minimum denominations of at least P500,000.00 or its equivalent; k) It must clearly state on its face that it is not a deposit and is not insured by the PDIC; and l) The bank must submit a written external legal opinion that the abovementioned requirements, including the subordination features, have been met: Provided, That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.e., twenty percent (20%) if the remaining life is four (4) years to less than five (5) years, forty percent (40%) if the remaining life is three (3) years to less than four (4) years, etc.]: Provided, further, That where it is denominated in a foreign currency, it shall be revalued in accordance with PAS 21: Provided, furthermore, That for purposes of reserve requirement regulation, it shall not be treated as time deposit liability, deposit substitute liability or other forms of borrowings. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 9 APP. Q-46 08.12.31 Part III. Credit risk-weighted assets A. Risk-weighting 1. Banking book exposures shall be risk-weighted based on third party credit assessment of the individual exposure given by eligible external credit assessment institutions listed in Part III.C. The table below sets out the mapping of external credit assessments with the corresponding risk weights for banking book exposures. Exposures related to credit derivatives and securitizations are dealt with in Parts IV and V, respectively. Exposures should be risk-weighted net of specific provisions. STANDARDIZED CREDIT RISK WEIGHTS Credit Assessment1 Sovereigns MDBs Banks Interbank call loans Local government units Government corporations Corporates Housing loans MSME qualified portfolio Defaulted exposures Housing loans Others ROPA All other assets AAA 0% 0% 20% AA+ to A+ AAto A0% 20% 20% 50% 20% 50% 20% 20% 20% 20% 20% 20% 50% 50% 50% BBB+ to BB+ to BBBBB50% 100% 50% 100% 50% 100% 20% 50% 100% 100% 100% 100% 100% 50% 75% B+ to B100% 100% 100% Below B150% 150% 150% Unrated 100% 100% 100%2 100% 150% 150% 150% 150% 150% 100%2 100% 2 100% 2 100% 150% 150% 100% Sovereign Exposures 2. These include all exposures to central governments and central banks. All Philippine peso (Php) denominated exposures to the Philippine National Government (NG) and the BSP shall be riskweighted at zero percent (0%). Foreign currency denominated exposures to the NG and the BSP, however, shall be riskweighted according to the table above: Provided, That only one-third (1/3) of the applicable risk weight shall be applied from 01 July 2007, two-thirds (2/3) from 01 January 2008, and the full risk weight from 01 January 20093. Exposures to the Bank for International Settlements (BIS), the International Monetary Fund (IMF), and the European Central Bank (ECB) and the European Community (EC) shall also receive zero percent (0%) risk weight. (As amended by Circular No. 588 dated 11 December 2007) MDB Exposures 3. These include all exposures to multilateral development banks. Exposures to the World Bank Group comprised of the IBRD and the IFC, the ADB, the AfDB, the EBRD, the IADB, the EIB, the European Investment Fund (EIF), the NIB, the CDB, the Islamic Development Bank (IDB), and the CEDB currently receive zero percent (0%) risk weight. However, it is the responsibility of the bank to monitor the external credit assessments of multilateral development banks to which they have an exposure to reflect in the risk weights any change therein. 1 The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external rating agencies is in Part III.C 2 Or risk weight applicable to sovereign of incorporation, whichever is higher 3 The capital treatment of QB's holdings of ROP Global Bonds paired with Warrants under the BSP's revised risk-based capital adequacy framework is contained in Appendix Q-46a. Q Regulations Appendix Q-46 - Page 10 Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 Bank Exposures 4. These include all exposures to Philippine-incorporated banks/QBs, as well as foreign-incorporated banks. Interbank Call Loans 5. Interbank call loans refer to interbank loans that pass through the Interbank Call Loan Funds Transfer System of the BSP, the BAP, and the PCHC. Exposures to Local Government Units 6. These include all exposures to non-central government public sector entities. Bonds issued by Philippine local government units (LGU Bonds), which are covered by Deed of Assignment of Internal Revenue Allotment of the LGU and guaranteed by the LGU Guarantee Corporation shall be risk-weighted at the lower of fifty percent (50%) or the appropriate risk weight indicated in the table above. Exposures to Government Corporations 7. These include all exposures to commercial undertakings owned by central or local governments. Exposures to Philippine GOCCs that are not explicitly guaranteed by the Philippine NG are also included in this category. Corporate Exposures 8. These include all exposures to business entities, which are not considered as micro, small, or medium enterprises (MSME), whether in the form of a corporation, partnership, or soleproprietorship. These also include all exposures to FIs, including securities dealers/ brokers and insurance companies, not falling under the definition of Bank in paragraph 4. Housing Loans 9. These include all current loans to individuals for housing purpose, fully secured by first mortgage on residential property that is or will be occupied by the borrower. Micro, Small, and Medium Enterprises (MSME) 10. An exposure must meet the following criteria to be considered as an MSME exposure: a) The exposure must be to an MSME as defined under existing BSP regulations; and b) The exposure must be in the form of direct loans, or unavailed portion of committed credit lines and other business facilities such as outstanding guarantees issued and unused letters of credit: Provided, That the credit equivalent amounts thereof shall be determined in accordance with the methodology for offbalance sheet items. Qualified portfolio 11. For a bank’s portfolio of MSME exposures to be considered as qualified, it must be a highly diversified portfolio, i.e., it has at least 500 borrowers that are distributed over a number of industries. In addition, all MSME exposures in the qualified portfolio must be current exposures. All non-current MSME exposures are excluded from count and are to be treated as ordinary nonperforming loans. Current MSME exposures not qualifying under highly diversified MSME portfolio will be riskweighted based on external rating and shall be risk-weighted in the same manner as corporate exposures. Defaulted Exposures 12. A default is considered to have occurred in the following cases: a) If a credit obligation is considered non-performing under existing rules and regulations. For non-performing debt securities, they shall be defined as follows: i. For zero-coupon debt securities, and debt securities with quarterly, semiannual, or annual coupon payments, they shall be considered non-performing Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 11 APP. Q-46 08.12.31 when principal and/or coupon payment, as may be applicable, is unpaid for thirty (30) days or more after due date; and ii. For debt securities with monthly coupon payments, they shall be considered non-performing when three (3) or more coupon payments are in arrears: Provided, however, That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the debt security, the total outstanding balance of the debt security shall be considered as non-performing. b) If a borrower/obligor has sought or has been placed in bankruptcy, has been found insolvent, or has ceased operations in the case of businesses; c) If the bank sells a credit obligation at a material credit-related loss, i.e., excluding gains and losses due to interest rate movements. Banks’ board-approved internal policies must specifically define when a material credit-related loss occurs; and d) If a credit obligation of a borrower/ obligor is considered to be in default, all credit obligations of the borrower/obligor with the same bank shall also be considered to be in default. Housing loans 13. These include all loans to individuals for housing purpose, fully secured by first mortgage on residential property that is or will be occupied by the borrower, which are considered to be in default in accordance with paragraph 12. Others 14. These include the total amounts or portions of all other defaulted exposures, which are not secured by eligible collateral or guarantee as defined in Part III.B. ROPA 15. All real and other properties acquired and classified as such under existing regulations. Q Regulations Appendix Q-46 - Page 12 Other Assets 16. The standard risk weight for all other assets, including bank premises, furniture, fixtures and equipment, will be 100%, except in the following cases: a) Cash on hand and gold, which shall be risk-weighted at zero percent (0%); and b) Checks and other cash items, which shall be risk-weighted at twenty percent (20%). Accruals on a claim shall be classified and risk-weighted in the same way as the claim. Bills purchased shall be classified and risk-weighted as claims on the drawee bank. The treatments of credit derivatives and securitization exposures are presented separately in Parts IV and V, respectively. Investments in equity or other regulatory capital instruments issued by banks or other financial/non-financial allied/nonallied undertakings will be risk-weighted at 100%, unless deductible from the capital base as required in Part II. Off-balance sheet items 17. For off-balance sheet items, the risk-weighted amount shall be calculated using a two-step process. First, the credit equivalent amount of an off-balance sheet item shall be determined by multiplying its notional principal amount by the appropriate credit conversion factor, as follows: a) 100% credit conversion factor - this shall apply to direct credit substitutes, e.g., general guarantees of indebtedness (including standby letters of credit serving as financial guarantees for loans and securities) and acceptances (including endorsements with the character of acceptances), and shall include: i. Guarantees issued other than shipside bonds/airway bills; ii. Financial standby letters of credit b) Fifty percent (50%) credit conversion factor – this shall apply to certain transaction-related contingent items, e.g., performance bonds, bid bonds, Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 warranties and standby letters of credit related to particular transactions, and shall include: i. Performance standby letters of credit (net of margin deposit), established as a guarantee that a business transaction will be performed; This shall also apply to – i. Note issuance facilities and revolving underwriting facilities; and ii. Other commitments, e.g., formal standby facilities and credit lines with an original maturity of more than one (1) year, and this shall also include Underwritten Accounts Unsold. c) Twenty percent (20%) credit conversion factor – this shall apply to shortterm, self-liquidating trade-related contingencies arising from movement of goods, e.g., documentary credits collateralized by the underlying shipments, and shall include: i. Trade-related guarantees: - Shipside bonds/airway bills - Letters of credit – confirmed ii. Sight letters of credit outstanding (net of margin deposit); iii. Usance letters of credit outstanding (net of margin deposit); iv. Deferred letters of credit (net of margin deposit); and v. Revolving letters of credit (net of margin deposit) arising from movement of goods and/or services; This shall also apply to commitments with an original maturity of up to one (1) year, and shall include Committed Credit Line for Commercial Paper Issued. d) Zero percent (0%) credit conversion factor – this shall apply to commitments which can be unconditionally cancelled at any time by the bank without prior notice, and shall include Credit Card Lines. This shall also apply to those not involving credit risk, and shall include: i. Late deposits/payments received; ii. Inward bills for collection; iii. Outward bills for collection; iv. Travelers’ checks unsold; v. Trust department accounts; vi. Items held for safekeeping/ custodianship; vii. Items held as collaterals; viii.Deficiency claims receivable; and ix. Others. 18. For derivative contracts, the credit equivalent amount shall be the sum of the current credit exposure (or replacement cost) and an estimate of the potential future credit exposure (or add-on). However, the following shall not be included in the computation: a) Instruments which are traded in an exchange where they are subject to daily receipt and payment of cash variation margin; and b) Exchange rate contract with original maturity of fourteen (14) calendar days or less. 19. The current credit exposure shall be the positive mark-to-market value of the contract (or zero if the mark-to-market value is zero or negative). The potential future credit exposure shall be the product of the notional principal amount of the contract multiplied by the appropriate potential future credit conversion factor, as indicated below: Interest Exchange Rate Rate Equity Contract Contract Contract One (1) year or less 0.0% 1.0% 6.0% Over one (1) year to five (5) years 0.5% 5.0% 8.0% Over five (5) years 1.5% 7.5% 10.0% Residual Maturity Provided, That: a) For contracts with multiple exchanges of principal, the factors are to be multiplied by the number of remaining payments in the contract; b) For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 13 APP. Q-46 08.12.31 equal to the time until the next reset date, and in the case of interest rate contracts with remaining maturities of more than one (1) year that meet these criteria, the potential future credit conversion factor is subject to a floor of one-half percent (1/2%); and c) No potential future credit exposure shall be calculated for single currency floating/floating interest rate swaps, i.e., the credit exposure on these contracts would be evaluated solely on the basis of their mark-to-market value. 20. The credit equivalent amount shall be treated like any on-balance sheet asset, and shall be assigned the appropriate risk weight, i.e., according to the third party credit assessment of the counterparty exposure. B. Credit risk mitigation (CRM) 21. Banks use a number of techniques to mitigate the credit risks to which they are exposed. For example, exposures may be collateralized by first priority claims, in whole or in part with cash or securities, or a loan exposure may be guaranteed by a third party. Physical collateral, such as real estate, buildings, machineries, and inventories are not recognized at this time for credit risk mitigation purposes in line with Basel II recommendations. 22. In order for banks to obtain capital relief for any use of CRM techniques, all documentation used in collateralized transactions and for documenting guarantees must be binding on all parties and legally enforceable in all relevant jurisdictions. Banks must have conducted sufficient legal review to verify this and have a well-founded legal basis to reach this conclusion, and undertake such further review as necessary to ensure continuing enforceability. 23. The effects of CRM will not be double counted. Therefore, no additional supervisory recognition of CRM for regulatory capital purposes will be granted on claims for which an issue-specific rating is used that already reflects that CRM. Principal-only ratings will not be allowed within the framework of CRM. 24. While the use of CRM techniques reduces or transfers credit risk, it simultaneously may increase other risks (residual risks). Residual risks include legal, operational, liquidity and market risks. Therefore, it is imperative that banks employ robust procedures and processes to control these risks, including strategy; consideration of the underlying credit; valuation; policies and procedures; systems; control of roll-off risks; and management of concentration risk arising from the bank’s use of CRM techniques and its interaction with the bank’s overall credit risk profile. 25. The disclosure requirements under Part VIII of this document must also be observed for banks to obtain capital relief (i.e., adjustments in the risk weights of collateralized or guaranteed exposures) in respect of any CRM techniques. Collateralized transactions 26. A collateralized transaction is one in which: a) banks have a credit exposure or potential credit exposure; and b) that credit exposure or potential credit exposure is hedged in whole or in part by collateral posted by a counterparty1 or by a third party in behalf of the counterparty. 27. In addition to the general requirement for legal certainty set out in paragraph 22, the legal mechanism by which collateral is pledged or transferred must ensure that the bank has the right to liquidate or take legal possession of it, in a timely manner, in the event of default, insolvency or bankruptcy (or one or more otherwise-defined credit events set out in the transaction documentation) of the counterparty (and, where applicable, of the 1 Counterparty refers to a party to whom a bank has an on- or off-balance sheet credit exposure or a potential credit exposure. Q Regulations Appendix Q-46 - Page 14 Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 custodian holding the collateral). Furthermore, banks must take all steps necessary to fulfill those requirements under the law applicable to the bank’s interest in the collateral for obtaining and maintaining an enforceable security interest, e.g., by registering it with a registrar, or for exercising a right to net or set off in relation to title transfer collateral. 28. In order for collateral to provide protection, the credit quality of the counterparty and the value of the collateral must not have a material positive correlation. For example, securities issued by the counterparty – or by any related group entity – would provide little protection and so would be ineligible. 29. Banks must have clear and robust procedures for the timely liquidation of collateral to ensure that any legal conditions required for declaring the default of the counterparty and liquidating the collateral are observed, and that collateral can be liquidated promptly. 30. Where the collateral is required to be held by a custodian, the BSP will only recognize the collateral for regulatory capital purposes if it is held by BSPauthorized third party custodians. 31. A capital requirement will be applied to a bank on either side of the collateralized transaction: for example, both repos and reverse repos will be subject to capital requirements. Likewise, both sides of a securities lending and borrowing transaction will be subject to explicit capital charges, as will the posting of securities in connection with a derivative exposure or other borrowing. Banking book 32. Where banks take eligible collateral, as listed in paragraph 34, and satisfies the requirements under paragraphs 27 to 31, they are allowed to apply the risk weight of the collateral to the collateralized portion of the credit exposure (equivalent to the fair market value of recognized collateral), subject to a floor of twenty percent (20%). The twenty percent (20%) floor shall not apply and a zero percent (0%) risk weight can be applied when the exposure and the collateral are denominated in the same currency, and either: a) The collateral is cash as defined in paragraph 34.a; or b) The collateral is a sovereign debt security eligible for zero percent (0%) risk weight, or a Php-denominated debt obligation issued by the Philippine NG or the BSP, which fair market value has been discounted by twenty percent (20%). 33. For collateral to be recognized, however, the collateral must be pledged for at least the life of the exposure and it must be marked to market and revalued with a minimum frequency of every six (6) months. 34. The following are the eligible collateral instruments: a) Cash (as well as certificates of deposit or comparable instruments issued by the lending bank) on deposit with the bank which is incurring the counterparty exposure; b) Gold; c) Debt obligations issued by the Philippine NG or the BSP; d) Debt securities issued by central governments and central banks (and PSEs treated as sovereigns) of foreign countries as well as MDBs with at least investment grade external credit ratings; e) Other debt securities with external credit ratings of at least BBB- or its equivalent; f) Unrated senior debt securities issued by banks with an issuer rating of at least BBB- or its equivalent, or with other debt issues of the same seniority with a rating of at least BBB- or its equivalent; g) Equities included in the main index of an organized exchange; and Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 15 APP. Q-46 08.12.31 h) Investments in Unit Investment Trust Funds (UITF) and the Asian Bond Fund 2 (ABF2) duly approved by the BSP. period, daily marking to market and daily remargining), expressed as percentages: Trading book 35. A credit risk capital requirement should also be applied to banks’ counterparty exposures in the trading book (e.g., repo-style transactions, OTC derivatives contracts). Where banks take eligible collateral for these trading book transactions, as listed in paragraph 34, and satisfies the requirements under paragraphs 27 to 31, they are to compute for the credit risk capital requirement according to the following paragraphs: Provided, That, for repo-style transactions in the trading book, all instruments which are included in the trading book may be used as eligible collateral. 36. For collateralized transactions in the trading book, the exposure amount after risk mitigation is calculated as follows: E* = max {0, [E x (1 + He) – C x (1 – Hc – Hfx)]} Haircut Sovereign Other (and PSEs Issuers treated as sovereign) and MDB (with 0% risk weight) issuers 0.5 Where: E* = the exposure value after risk mitigation E = the current value of the exposure H e = haircut appropriate to the exposure C = the current value of the collateral received H c = haircut appropriate to the collateral Hfx = haircut appropriate for currency mismatch between the collateral and exposure set at 8% (based on a 10-business day holding period and daily marking to market) 37. The treatment of transactions where there is a maturity mismatch between the maturity of the counterparty exposure and the collateral is given in paragraphs 50 to 54. 38. These are the haircuts to be used (based on a 10-business day holding Issue rating for debt securities1 Residual maturity Php – denomi<1 year nated securities issued by the >1 yr. to < 5 yrs. 2 Philippine NG > 5 years 4 and BSP <1 year 0.5 1 AAA to AA>1 yr. to < 5 yrs. 2 4 > 5 years 4 8 A+ to BBB-/ <1 year 1 2 Unrated bank >1 yr. to < 5 yrs. 3 6 debt securities > 5 years 6 12 as defined in paragraph 34.f Equities inclu15 ded in the main index and gold UITF and ABF2 Highest haircut applicable to any security in which the fund can invest Cash per parag0 raph 34.a in the same currency Other financial 25 instruments in the trading book (applies to repostyle transactions in the trading book only) 39. Where the collateral is a basket of assets, the haircut on the basket will be H =Σai Hi, where ai is the weight of the asset in the basket and Hi is the haircut applicable to that asset. 40. For collateralized OTC derivatives transactions in the trading book, the credit equivalent amount will be computed according to paragraphs 18 to 19, but adjusted by deducting the volatility adjusted collateral amount as computed according to paragraphs 36 to 39. 1 The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external rating agencies is in Part III.C Q Regulations Appendix Q-46 - Page 16 Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 41. The exposure amount after risk mitigation will be multiplied by the risk weight of the counterparty to obtain the risk-weighted asset amount for the collateralized transaction. Guarantees 42. Where guarantees are direct, explicit, irrevocable and unconditional, banks may be allowed to take account of such credit protection in calculating capital requirements. 43. A guarantee must represent a direct claim on the protection provider and must be explicitly referenced to specific exposures or a pool of exposures, so that the extent of the cover is clearly defined and incontrovertible. Other than non-payment by a protection purchaser of money due in respect of the credit protection contract, the guarantee must be irrevocable; there must be no clause in the contract that would allow the protection provider unilaterally to cancel the credit cover or that would increase the effective cost of cover as a result of deteriorating credit quality in the hedged exposure. It must also be unconditional; there should be no clause in the protection contract outside the direct control of the bank that could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original counterparty fails to make the payment(s) due. 44. In addition to the legal certainty requirement in paragraph 22, in order for a guarantee to be recognized, the following conditions must be satisfied: a) On the qualifying default/ non-payment of the counterparty, the bank may in a timely manner pursue the guarantor for any monies outstanding under the documentation governing the transaction. The guarantor may make one lump sum payment of all monies under such documentation to the bank, or the guarantor may assume the future payment obligations of the counterparty covered by the guarantee. The bank must have the right to receive any such payments from the guarantor without first having to take legal actions in order to pursue the counterparty for payment; b) The guarantee is an explicitly documented obligation assumed by the guarantor; and c) The guarantee must cover all types of payments the underlying obligor is expected to make under the documentation governing the transaction, for example, notional amount, margin payments, etc. Where a guarantee covers payment of principal only, interests and other uncovered payments should be treated as an unsecured amount. 45. Where the bank’s exposure is guaranteed by an eligible guarantor, as listed in paragraph 47, and satisfies the requirements under paragraphs 42 to 44, the bank is allowed to apply the risk weight of the guarantor to the guaranteed portion of the credit exposure. 46. The treatment of transactions where there is a mismatch between the maturity of the counterparty exposure and the guarantee is given in paragraphs 50 to 54. 47. The following are the eligible guarantors: a) Philippine NG and the BSP; b) Central governments and central banks and PSEs of foreign countries as well as MDBs with a lower risk weight than the counterparty; c) Banks with a lower risk weight than the counterparty; and d) Other entities with external credit assessment of at least A- or its equivalent. 48. Where a bank provides a credit protection to another bank in the form of a guarantee that a third party will perform on its obligations, the risk to the guarantor bank is the same as if the bank had entered into the transaction as a principal. In such circumstances, the guarantor bank will be required to calculate capital requirement on the guaranteed amount according to the Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 17 APP. Q-46 08.12.31 risk weight corresponding to the third party exposure. In this instance, and provided the credit protection is deemed to be legally effective, the credit risk is considered transferred to the bank providing credit protection. However, the bank receiving credit protection on its exposure to a third party shall recognize a corresponding risk-weighted credit exposure to the bank providing credit protection. 49. An exposure that is covered by a guarantee that is counter-guaranteed by the Philippine NG or BSP, may be considered as covered by the guarantee of the Philippine NG or BSP: Provided, That: a) the counter-guarantee covers all credit risk element of the exposure; b) both the original guarantee and the counter-guarantee meet all operational requirements for guarantees, except that the counter guarantee need not be direct and explicit to the original exposure; and c) the cover is robust and that no historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct guarantee of the Philippine NG and BSP. Currently, Php-denominated exposures to the extent guaranteed by Industrial Guarantee and Loan Fund (IGLF), Home 1 Guaranty Corporation (HGC) ,and Trade and Investment Development Corporation of the Philippines (TIDCORP), which guarantees are counter-guaranteed by the Philippine NG receive zero percent (0%) risk weight. Maturity mismatch 50. For collateralized transactions in the trading book and guaranteed transactions, the credit risk mitigating effects of such transactions will still be recognized even if a maturity mismatch occurs between the hedge and the underlying exposure, subject to appropriate adjustments. 51. For purposes of calculating risk-weighted assets, a maturity mismatch occurs when the residual maturity of a Q Regulations Appendix Q-46 - Page 18 hedge is less than that of the underlying exposure. 52. The maturity of the hedge and the maturity of the underlying exposure should both be defined conservatively. For the hedge, embedded options which may reduce the term of the hedge should be taken into account so that the shortest possible effective maturity is used. Where a call is at the discretion of the guarantor/ protection seller, the maturity will always be at the first call date. If the call is at the discretion of the protection buying bank but the terms of the arrangement at origination of the hedge contain a positive incentive for the bank to call the transaction before contractual maturity, the remaining time to the first call date will be deemed to be the effective maturity. For example, where there is a step-up in cost in conjunction with a call feature or where the effective cost of cover increases over time even if credit quality remains the same or increases, the effective maturity will be the remaining time to the first call. The effective maturity of the underlying, on the other hand, should be gauged as the longest remaining time before the counterparty is scheduled to fulfill its obligation, taking into account any applicable grace period. 53. Hedges with maturity mismatches are only recognized when their original maturities are greater than or equal to one year. As a result, the maturity of hedges for exposures with original maturities of less than one (1) year must be matched to be recognized. In all cases, hedges will no longer be recognized when they have a residual maturity of three months or less. 54. When there is a maturity mismatch with recognized credit risk mitigants, the following adjustment will be applied. Pa = P x (t – 0.25)/(T – 0.25) Where: Pa = value of the credit protection adjusted for maturity mismatch Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 P = credit protection (e.g., collateral amount, guarantee amount) adjusted for any haircuts t = min (T, residual maturity of the credit protection arrangement) expressed in years T = min (5, residual maturity of the exposure) expressed in years International credit assessment agencies: a) Standard & Poor’s; b) Moody’s; c) Fitch Ratings; and d) Such other rating agencies as may be approved by the Monetary Board. Domestic credit assessment agencies: a) PhilRatings; and b) Such other rating agencies as may be approved by the Monetary Board. C. Use of third party credit assessments 55. The following third party credit 56. The tables below set out the mapping assessment agencies are recognized of ratings given by the recognized credit by the BSP for regulatory capital assessment agencies for purposes of determining the appropriate risk weights: purposes: Agency INTERNATIONAL RATINGS S&P AAA AA+ AA AAA+ A AMoody’s Aaa Aa1 Aa2 Aa3 A1 A2 A3 Fitch AAA AA+ AA AAA+ A AAgency PhilRatings AAA Aa+ Agency S&P Moody’s Fitch BBB+ Baa1 BBB+ BBB Baa2 BBB Agency PhilRatings Agency S&P Moody's Fitch Agency PhilRatings Baa+ Baa B B2 B BB3 B- DOMESTIC RATINGS Aa AaA+ A INTERNATIONAL RATINGS BBBBB+ BB BBBaa3 Ba1 Ba2 Ba3 BBBBB+ BB BBDOMESTIC RATINGS BaaBa+ Ba Ba- AB+ B1 B+ B+ INTERNATIONAL RATINGS DOMESTIC RATINGS B B- 57. The BSP will issue the mapping of ratings of other rating agencies as soon as it is recognized by the BSP for regulatory capital purposes. National Rating Systems 58. With prior BSP approval, international credit rating agencies may have national rating systems developed exclusively for use in the Philippines using the Philippine sovereign as reference highest credit quality anchor. Multiple Assessments 59. If an exposure has only one rating by any of the BSP recognized credit assessment agencies, that rating shall be used to determine the risk weight of the exposure; in cases where there are two or more ratings which map into different risk Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 19 APP. Q-46 08.12.31 weights, the higher of the two lowest risk weights should be used. Issuer versus issue assessments 60. Any reference to credit rating shall refer to issue-specific rating; the issuer rating may be used only if the exposure being risk-weighted is: a) an unsecured senior obligation of the issuer and is of the same denomination applicable to the issuer rating (e.g., local currency issuer rating may be used for risk weighting local currency denominated senior claims); b) short-term; and c) in cases of guarantees. 61. For loans, risk weighting shall depend on either the rating of the borrower or the rating of the unsecured senior obligation of the borrower: Provided, That in case of the latter, the loan is of the same currency denomination as the unsecured senior obligation. Domestic versus international debt issuances 62. Domestic debt issuances may be rated by BSP-recognized domestic credit assessment agencies or by international credit assessment agencies which have developed a national rating system acceptable to the BSP. Internationallyissued debt obligations shall be rated by BSP-recognized international credit assessment agencies only. Level of application of the assessment 63. External credit assessments for one entity within a corporate group cannot be used to proxy for the credit assessment of other entities within the same group. Such other entities should secure their own ratings. Part IV. Credit Derivatives 1. This Part sets out the capital treatment for credit derivatives. Banks may Q Regulations Appendix Q-46 - Page 20 use credit derivatives to mitigate its credit risks or to acquire credit risks. For credit derivatives that are used as credit risk mitigants (CRM), the general requirements for the use of CRM techniques in paragraphs 21 to 25, Part III.B, have to be satisfied, in addition to the specific operational requirements for credit derivatives in paragraphs 8 to 14. 2. The contents of this Part are just the general rules to be followed in computing capital requirements for credit derivatives. A bank, therefore, is expected to consult the BSP-SES when there is uncertainty about the computation of capital requirements, or even about whether a given transaction should be treated under the credit derivatives framework. A. Definitions and general terminology 3. Credit derivative – a contract wherein one party called the protection buyer or credit risk seller transfers the credit risk of a reference asset or assets issued by a reference entity or entities, which it may or may not own, to another party called the protection seller or credit risk buyer. In return, the protection buyer pays a premium or interest-related payments to the protection seller reflecting the underlying credit risk of the reference asset/s. Credit derivatives may refer to credit default swaps (CDS), total return swaps (TRS), and credit-linked notes (CLN) and similar products. 4. Credit default swap – a credit derivative wherein the protection buyer may exchange the reference asset or any deliverable obligation of the reference entity for cash equal to a specified amount, or get compensated to the extent of the difference between the par value and market value of the asset upon the occurrence of a defined credit event. 5. Total return swap – a credit derivative wherein the protection buyer exchanges the actual collections and Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 variations in the prices of the reference asset with the protection seller in return for a fixed premium. 6. Credit-linked note – a pre-funded credit derivative wherein the note holder acts as a protection seller while the note issuer is the protection buyer. As such, the repayment of the principal to the note holder is contingent upon the nonoccurrence of a defined credit event. All references to CLNs shall be taken to generically include similar instruments, such as credit-linked deposits (CLDs). 7. Special purpose vehicle – refers to an entity specifically established to issue CLNs of a single, homogeneous risk class that are fully collateralized as to principal by eligible collateral instruments listed in paragraph 34, Part III.B, and which are purchased out of the proceeds of the note issuance. B. Operational requirements for credit derivatives 8. A credit derivative must represent a direct claim on the protection seller and must be explicitly referenced to specific exposures or a pool of exposures, so that the extent of the cover is clearly defined and incontrovertible. Other than non-payment by a protection buyer of money due in respect of the credit derivative contract, it must be irrevocable; there must be no clause in the contract that would allow the protection seller unilaterally to cancel the credit cover or that would increase the effective cost of cover as a result of deteriorating credit quality in the hedged exposure. It must also be unconditional; there should be no clause in the credit derivative contract outside the direct control of the protection buyer that could prevent the protection seller from being obliged to pay out in a timely manner in the event of a defined credit event. 9. The credit events specified by the contracting parties must at a minimum cover: a) failure to pay the amounts due under terms of the underlying obligation that are in effect at the time of such failure (with a grace period that is closely in line with the grace period in the underlying obligation); b) bankruptcy, insolvency or inability of the obligor to pay its debts, or its failure or admission in writing of its inability generally to pay its debts as they become due, and analogous events; and c) restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that results in a credit loss event (i.e., charge-off, specific provision or other similar debit to the profit and loss account). 10. The credit derivative shall not terminate prior to expiration of any grace period required for a default on the underlying obligation to occur as a result of a failure to pay, subject to the provisions of paragraph 52 of Part III.B. 11. Credit derivatives allowing for cash settlement are recognized for capital purposes insofar as a robust valuation process is in place in order to estimate loss reliably. There must be a clearly specified period for obtaining post-credit event valuations of the underlying obligation. 12. If the protection buyer’s right or ability to transfer the underlying obligation to the protection seller is required for settlement, the terms of the underlying obligation must provide that any required consent to such transfer may not be unreasonably withheld. 13. The identity of the parties responsible for determining whether a credit event has occurred must be clearly defined. This determination must not be the sole responsibility of the protection seller. The bank as protection buyer must have the right/ability to inform the protection seller of the occurrence of a credit event. 14. Asset mismatches (underlying obligation is different from the obligation Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 21 APP. Q-46 08.12.31 used for purposes of determining cash settlement or the deliverable obligation, or from the obligation used for purposes of determining whether a credit event has occurred) are permissible if: a) the obligation used for purposes of determining cash settlement or the deliverable obligation, or the obligation used for purposes of determining whether a credit event has occurred ranks pari passu with or is junior to the underlying obligation; and b) both obligations share the same obligor (i.e., the same legal entity) and legally enforceable cross-default or crossacceleration clauses are in place. C. Capital treatment for protection buyers 15. A bank that enters into a credit derivative transaction as a protection buyer in order to hedge an existing exposure in the banking book may only get capital relief if all the general requirements for the use of CRM techniques in paragraphs 21 to 25, Part III.B and the conditions in paragraphs 8 to 14 are satisfied. In addition, only the eligible guarantors listed in paragraph 47, Part III.B are considered as eligible protection sellers. 16. If all of the conditions in paragraph 15 are satisfied, banks that are protection buyers may apply the risk weight of the protection seller to the protected portion of the exposure being hedged. The risk weight of the protection seller should therefore be lower than the risk weight of the exposure being hedged for capital relief to be recognized. Exposures that are protected through the issuance of CLNs will be treated as transactions collateralized by cash and a zero percent (0%) risk weight is applied to the protected portion. The uncovered portion shall retain the risk weight of the bank’s underlying counterparty. 17. The protected portion of an exposure is measured as follows: Q Regulations Appendix Q-46 - Page 22 a) The fixed amount, if such is to be paid upon the occurrence of a credit event; or b) The notional value of the contract if either (1) par is to be paid in exchange for physical delivery of the reference asset, or (2) par less market value of the asset is to be paid upon the occurrence of a credit event. 18. A bank may obtain credit protection for a basket of reference entities where the contract terminates and pays out on the first entity to default. In this case, the bank may substitute the risk weight of the protection seller for the risk weight of the asset within the basket with the lowest risk-weighted amount, but only if the notional amount is less than or equal to the notional amount of the credit derivative. 19. Where the contract terminates and pays out on the nth (other than the first) entity to default, the bank will only be able to recognize any reductions in the risk weight of the underlying asset if (n-1)th default-protection has also been obtained or when n-1 of the assets within the basket has already defaulted. 20. Where the contract is referenced to entities in the basket proportionately, reductions in the risk weight will only apply to the extent of the underlying asset’s share of protection in the contract. 21. When a bank conducts an internal hedge using a credit derivative (i.e., hedging the credit risk of an exposure in the banking book with a credit derivative booked in the trading book), in order for the bank to receive any reduction in the capital requirement for the exposure in the banking book, the credit risk in the trading book must be transferred to an outside third party (i.e., an eligible protection seller). 22. Where a bank buys credit protection through a TRS and records the net payments received on the swap as net income, but does not record offsetting Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 deterioration in the value of the asset that is protected (either through reductions in fair value or by an addition to reserves), the credit protection will not be recognized. 23. Materiality thresholds on payments below which no payment is made in the event of loss are equivalent to retained first loss positions and must be deducted in full from the capital of the bank buying the credit protection. 24. Where the credit protection is denominated in a currency different from that in which the exposure is denominated – i.e., there is a currency mismatch – the protected portion of the exposure will be reduced by the application of a haircut, as follows: Ga = G x (1 – Hfx) Where: Ga = adjusted protected portion of the exposure G = protected portion of the exposure prior to haircut Hfx= haircut appropriate for currency mismatch between the credit protection and underlying obligation set at eight percent (8%) (based on a 10-business day holding period and daily marking to market) 25. Where a maturity mismatch occurs between the credit protection and the underlying exposure, the protected portion of the exposure adjusted for maturity mismatch will be computed according to paragraph 50 to 54, Part III.B. D. Capital treatment for protection sellers 26. Where a bank is a protection seller in a CDS or TRS transaction, it must calculate a capital requirement on the reference asset as if it were a direct investor in the reference asset. The risk weight of the reference asset is multiplied by the nominal amount of the protection provided by the credit derivative to obtain the risk-weighted exposure. 27. For a bank holding a CLN, credit exposure is acquired on two fronts. As such, the on-balance sheet exposure arising from the note should be weighted by adding the risk weights of the reference entity and the risk weight of the note issuer. The amount of exposure is the carrying amount of the note. If the CLN principal is fully collateralized by an eligible collateral listed in paragraph 34, Part III.B, and which satisfies the requirements in paragraphs 27 to 31, Part III.B, the risk weight of the note issuer is substituted with the risk weight associated with the relevant collateral. 28. When the credit derivative is referenced to a basket of reference entities and the contract terminates and pays out on the first entity to default in the basket, capital should be held to consider the cumulative risk of all the reference entities in the basket. This means that the risk weights of all the reference entities are added up and multiplied by the amount of the protection provided by the credit derivative to obtain the risk-weighted exposure to the basket. However, the riskweighted exposure is capped at ten (10) times the protection provided under the contract. Accordingly, the maximum capital charge is 100% of the protection provided under the contract. The multiplier ten (10) is the reciprocal of the BSPrequired minimum CAR of ten percent (10%). For CLNs, the risk weight of the issuer is likewise included in the summing of the risk weights. 29. When the contract terminates and th pays out on the n (other than the first) entity to default, the treatment above shall apply except that in aggregating the risk weights of the reference entities, the risk weight/s of the n-1 lowest risk-weighted entity/ies is/are excluded from the computation. For CLNs, the risk weight of the issuer is likewise included in the summing of the risk weights. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 23 APP. Q-46 08.12.31 th 30. When a first or an n -to-default credit derivative has an external credit rating acceptable to the BSP, the risk weight in paragraph 21, Part V.F will be applied. 31. A contract that is referenced to entities in the basket proportionately should be risk-weighted according to each reference entity’s share of protection under the contract. E. Credit derivatives in the trading book 32. The following describes the positions to be reported for credit derivative transactions for purposes of calculating specific risk and general market risk charges under the standardized approach. 33. A CDS creates a notional position in the specific risk of the reference obligation. A TRS creates notional positions on the specific and general market risks of the reference obligation, and an opposite notional position on a zero coupon government security representing the fixed payments or premium under the TRS. A CLN creates a notional position in the specific risk of the reference obligation, a position on the specific risk associated with the issuer, and a position on the general market risk of the note. Specific risk 34. The specific risk position/s on the reference obligation/s created by credit derivatives are reported as short positions by protection buyers and long positions by protection sellers. In addition, holders of CLNs should report a long position on the specific risk of the note issuer. 35. The protection buyer in a first-todefault transaction should report a short position in the reference obligation with the lowest specific risk charge. A protection th buyer in an n (other than the first)-todefault transaction shall only be allowed to report a short position in a reference obligation only if n-1 obligations in the Q Regulations Appendix Q-46 - Page 24 reference basket has/have already defaulted. 36. When a credit derivative is referenced to multiple entities and the contract terminates and pays out on the first obligation to default in the basket, the transaction should be reported by the protection seller as long positions in each of the reference obligations in the basket. A CLN should likewise be reported as a long position on the note issuer. The total capital charge is capped at the notional amount of the derivative or, in the case of a CLN, the carrying amount of the note. 37. When the contract terminates and th pays out on the n (other than the first) entity to default in the basket, the treatment above shall apply except that the protection seller may exclude the long position/s on n-1 reference obligations with the lowest risk-weighted exposures in its report. A CLN should likewise be reported as a long position on the note issuer. The total capital charge is capped at the notional amount of the derivative or, in the case of a CLN, the carrying amount of the note. th 38. When an n -to-default credit derivative has an external credit rating acceptable to the BSP, the specific risk weights in Part VI.B will be applied. 39. When the contract is referenced to multiple obligations under a proportionate structure, positions in the reference obligations should be reported according to their respective proportions in the contract. General market risk 40. A protection buyer/seller in a TRS should report a short/long notional position on the reference obligation and a long/ short notional position on a zero coupon government security representing the fixed payment under the contract. 41. A protection buyer/seller in a CLN should report a short/long position on the note. Manual of Regulations for Non-Bank Financial Institutions APP. Q-46 08.12.31 Counterparty credit risk 42. CDS and TRS transactions in the trading book attract counterparty credit risk charges. A five percent (5%) add-on factor for the computation of the potential future credit exposure shall be used by both protection buyers and protection sellers if the reference obligation has an external credit rating of at least BBB- or its equivalent. A ten percent (10%) add-on factor applies to all other reference obligations. However, a protection seller in a CDS shall only be subject to the add-on factor if it is subject to closeout upon the insolvency of the protection buyer while the underlying is still solvent. The add-on in this case should be capped to the amount of unpaid premiums. 43. Where the credit derivative is a first to default transaction, the add-on will be determined by the lowest credit quality underlying in the basket, i.e., if there are any non-investment grade or unrated items in the basket, the ten percent (10%) add-on should be used. For second and subsequent to default transactions, underlying assets should continue to be allocated according to the credit quality, i.e., the second lowest credit quality will determine the add-on for a second to default transaction, etc. 44. Where the credit derivative is referenced proportionately to multiple obligations, the add-on factor will follow the add-on factor applicable for the obligation with the biggest share. If the protection is equally proportioned, the highest add-on factor should be used. Part V. Securitization 1. Banks must apply the securitization framework for determining regulatory capital requirements on their securitization exposures. Securitization exposures can include but are not restricted to the following: asset-backed securities, mortgage-backed securities, credit enhancements, liquidity facilities, interest rate or currency swaps, and credit derivatives. Underlying instruments in the pool being securitized may include but are not restricted to the following: loans, commitments, asset-backed and mortgagebacked securities, corporate bonds, equity securities, and private equity investments. 2. Since securitizations may be structured in many different ways, the capital treatment of a securitization exposure must be determined on the basis of its economic substance rather than its legal form. The contents of this Part are just the general rules to be followed in computing capital requirements for securitization exposures. A bank should therefore consult the BSPSES when there is uncertainty about the computation of capital requirements, or even about whether a given transaction should be considered a securitization. A. Definitions and general terminology 3. Traditional securitization – a structure where the cash flow from an underlying pool of exposures is used to service at least two (2) different stratified risk positions or tranches reflecting different degrees of credit risk. Payments to the investors depend upon the performance of the specified underlying exposures, as opposed to being derived from an obligation of the entity originating those exposures. The stratified/tranched structures that characterize securitizations differ from ordinary senior/subordinated debt instruments in that junior securitization tranches can absorb losses without interrupting contractual payments to more senior tranches, whereas subordination in a senior/subordinated debt structure is a matter of priority of rights to the proceeds of liquidation. 4. Synthetic securitization – a structure with at least two (2) different stratified risk positions or tranches that reflect different degrees of credit risk where credit risk of an underlying pool of Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 - Page 25 In the case of traditional securitizations. an early amortization provision will be considered either controlled or non-controlled. Clean-up call – an option that permits the securitization exposures to be called before all of the underlying exposures or securitization exposures have been repaid. Eligible liquidity facilities – an offbalance sheet securitization exposure shall be treated as an eligible liquidity facility if the following minimum requirements are satisfied: a) The facility documentation must clearly identify and limit the circumstances under which it may be drawn. and d) The pace of repayment should not be any more rapid than would be allowed by straight-line amortization over the period set out in criterion (c). there is the same pro rata sharing of interest.31 exposures is transferred. 7. allow investors to be paid out prior to the originally stated maturity of the securities issued. liquidity facilities should only fund exposures that are externally rated investment grade at the time of funding. Early amortization provisions – mechanisms that. A controlled early amortization provision must meet all of the following conditions: a) The bank must have an appropriate capital/liquidity plan in place to ensure that it has sufficient capital and liquidity available in the event of an early amortization. the facility must not cover any losses incurred in the underlying pool of exposures prior to a draw. b) Throughout the duration of the transaction. expenses. principal. or be structured such that drawdown is certain (as indicated by regular or continuous draws). provides some degree of added protection to other parties to the transaction.. credit default swaps) credit derivatives or guarantees that serve to hedge the credit risk of the portfolio. Credit enhancement – a contractual arrangement in which the bank retains or assumes a securitization exposure and..APP. 8. In addition. In addition. in substance. In the case of a synthetic transaction. including the amortization period. the clean-up call may take the form of a clause that extinguishes the credit protection. 9. b) The facility must be subject to an asset quality test that precludes it from being drawn to cover credit risk exposures that are considered non-performing under existing BSP regulations.g.g.Page 26 investors’ relative shares of the receivables outstanding at the beginning of each month. For risk-based capital purposes. losses and recoveries based on the bank’s and Q Regulations Appendix Q-46 . c) The bank must set a period for amortization that would be sufficient for at least ninety percent (90%) of the total debt outstanding at the beginning of the early amortization period to have been repaid or recognized as in default. Draws under the facility must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements. this is generally accomplished by repurchasing the remaining securitization exposures once the pool balance or outstanding securities have fallen below some specified level. 6. transaction-specific and program-wide) credit enhancements from which the liquidity would benefit have been exhausted. Originating bank – a bank that originates directly or indirectly underlying exposures included in the securitization. Accordingly. through the use of funded (e. the investors’ potential risk is dependent upon the performance of the underlying pool. Q-46 08.g. and Manual of Regulations for Non-Bank Financial Institutions . once triggered.12. An early amortization provision that does not satisfy the conditions for a controlled early amortization provision will be treated as non-controlled early amortization provision.. c) The facility cannot be drawn after all applicable (e. 5. in whole or in part. creditlinked notes) or unfunded (e. even in bankruptcy or receivership.g. or other entity organized for a specific purpose. Operational requirements for the recognition of risk transference in traditional securitizations 14. is obligated to retain the risk of the transferred exposures. The servicer should be entitled to full reimbursement and this right is senior to other claims on cash flows from the underlying pool of exposures. such as investors Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 . or (iii) increase the yield payable to parties other than the originating bank. The transferor is deemed to have maintained effective control over the transferred credit risk exposures if it: i. 13. f) The securitization does not contain clauses that (i) require the originating bank to alter systematically the underlying exposures such that the pool’s weighted average credit quality is improved unless this is achieved by selling assets to independent and unaffiliated third parties at market prices. Thus. Implicit support – arises when a bank provides support to a securitization in excess of its predetermined contractual obligation. Q-46 08. charge-offs. 10. servicing fees. B. SPEs are commonly used as financing vehicles in which exposures are sold to a trust or similar entity in exchange for cash or other assets funded by debt issued by the trust. assets acquired under a purchase agreement or loans made under a lending agreement) must not be subordinated to any interests of any note holder in the program or subject to deferral or waiver. An originating bank may exclude securitized exposures from the calculation of risk-weighted assets only if all of the following conditions have been met.12. trust. through the sale of assets or through subparticipation) that the exposures are put beyond the reach of the transferor and its creditors. Special purpose entity – a corporation.Page 27 .e. The assets are legally isolated from the transferor in such a way (e. The transferor’s retention of servicing rights to the exposures will not necessarily constitute indirect control of the exposures. c) The securities issued are not obligations of the transferor. or ii. These conditions must be supported by an opinion provided by a qualified legal counsel. (ii) allow for increases in a retained first loss position or credit enhancement provided by the originating bank after the transaction’s inception. e) Clean-up calls must satisfy the conditions set out in paragraph 17. b) The transferor does not maintain effective or indirect control over the transferred exposures. is able to repurchase from the transferee the previously transferred exposures in order to realize their benefits.APP. must still hold regulatory capital against any securitization exposures they retain.31 d) Repayment of draws on the facility (i. Excess spread – generally defined as gross finance charge collections and other income received by the trust or special purpose entity (SPE. however. a) Significant credit risk associated with the securitized exposures has been transferred to third parties. 11.. and the structure of which is intended to isolate the SPE from the credit risk of an originator or seller of exposures. the activities of which are limited to those appropriate to accomplish the purpose of the SPE.. Eligible servicer cash advance facilities – cash advance that may be provided by servicers to ensure an uninterrupted flow of payments to investors. specified in paragraph 13) minus certificate interest. and other senior trust or SPE expenses. investors who purchase the securities only have claim to the underlying pool of exposures. Banks meeting these conditions. d) The transferee is an SPE and the holders of the beneficial interests in that entity have the right to pledge or exchange them without restriction. 12. B.12. the use of CRM techniques (i. collateral. Q-46 08.B and Part IV of this Framework.. Maturity mismatches may arise in the context of synthetic securitizations when.APP. When the exposures in the underlying pool have different maturities. Part III. and v. C. For all other securitization exposures. Accordingly. for example. Eligible collateral pledged by SPEs may be recognized. the transaction will terminate. Part III. e) The instruments used to transfer credit risk must not contain terms or conditions that limit the amount of credit risk transferred.e. such as investors and third-party providers of credit enhancements. Clauses that require the originating bank to alter the underlying exposures to improve the pool’s weighted average credit quality. For synthetic securitizations.B. Clauses that provide for increases in a retained first loss position or credit enhancement provided by the originating bank after the transaction’s inception. maturity mismatches are not taken into account. when deduction is required. g) Clean-up calls must satisfy the conditions set out in paragraph 17. a bank uses credit derivatives to transfer part or all of the credit risk of a specific pool of assets to third parties. Clauses that materially limit the credit protection or credit risk transference (e.B and Part IV of this Framework. 16. Part III. iii. the capital requirement will be determined in accordance with paragraphs 50 to 54. significant materiality thresholds below which credit protection is deemed not to be triggered even if a credit event occurs or those that allow for the termination of the protection due to deterioration in the credit quality of the underlying exposures). c) Eligible guarantors are defined in paragraph 47.B.B.. Clauses that increase the yield payable to parties other than the originating bank. the longest maturity must be taken as the maturity of the pool. In case there is a maturity mismatch. SPEs are not recognized as eligible guarantors in the securitization framework. For synthetic securitizations. Operational requirements for the recognition of risk transference in synthetic securitizations 15. When the credit derivatives unwind. in response to a deterioration in the credit quality of the reference pool. Clauses that increase the banks’ cost of credit protection in response to deterioration in the pool’s quality. the effect of applying CRM techniques for hedging the underlying exposure are treated according to Part III. guarantees and credit derivatives) for hedging the underlying exposure may be recognized for risk-based capital purposes only if the conditions outlined below are satisfied: a) Credit risk mitigants must comply with the requirements as set out in Part III. f) An opinion must be obtained from a qualified legal counsel that confirms the enforceability of the contracts in all relevant jurisdictions. in response to a deterioration in the credit quality of the underlying pool.g. b) Eligible collateral is limited to that specified in paragraph 34.31 and third-party providers of credit enhancements. Manual of Regulations for Non-Bank Financial Institutions . Q Regulations Appendix Q-46 . the bank must apply the maturity mismatch treatment set forth in paragraphs 50 to 54. d) Banks must transfer significant credit risk associated with the underlying exposure to third parties. ii. Originating banks of synthetic securitizations with such maturity mismatches must deduct all retained positions that are unrated or rated below investment grade. such as those provided below: i. Part III. This implies that the effective maturity of the tranches of the synthetic securitization may differ from that of the underlying exposures.Page 28 iv. or securities issued remain. E. For securitization transactions that include a clean-up call. the underlying exposures must be treated as if they were not securitized. Q-46 08. as defined in paragraph 23. other than a clean-up call. 19. If a clean-up call. 18. banks must not recognize in regulatory capital any gainon-sale.Page 29 . For a traditional securitization. a bank cannot use the credit assessments issued by one ECAI for one or more tranches and those of another ECAI for other positions (whether retained or purchased) within the same securitization structure that may or may not be rated by the first ECAI.C. but rather must be at the discretion of the originating bank.31 D. Securitization transactions that include a clean-up call that does not meet all of the criteria stated in paragraph 17 result in a capital requirement for the originating bank. if a bank is owed both principal and interest. For example. The following operational criteria concerning the use of external credit assessments apply in the securitization framework: a) To be eligible for risk-weighting purposes. Where two or more eligible ECAIs can be used and these assess the credit risk of the same securitization exposure differently. Same treatment applies for synthetic securitization that incorporates a call. in form or in substance. and (iii) the clean-up call must only be exercisable when ten percent (10%) or less of the original underlying portfolio. for synthetic securitizations.APP. In other words. or. paragraph 59 of Part III. the bank purchasing protection must hold capital against the entire amount of the securitized exposures as if they did not benefit from any credit protection. Operational requirements for use of external credit assessments 20. when ten percent (10%) or less of the original reference portfolio value remains. a rating must be published in an accessible form and included in the ECAI’s transition matrix. that effectively terminates the transaction and the purchased credit protection on a specified date. which may be evidenced by strong market acceptance. c) Eligible ECAIs must have a demonstrated expertise in assessing securitizations. An eligible credit assessment must be publicly available. ratings that are made available only to the parties to a transaction do not satisfy this requirement.C will apply.12. the exercise of the clean-up call must be considered a form of implicit support provided by the bank and must be treated in accordance with paragraph 26. Additionally. Operational requirements and treatment of clean-up calls 17. when exercised. e) Where CRM is provided directly to an SPE by an eligible guarantor defined in Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 . no capital will be required due to the presence of a clean-up call if the following conditions are met: (i) the exercise of the clean-up call must not be mandatory. is found to serve as a credit enhancement. Consequently. the assessment must fully take into account and reflect the credit risk associated with timely repayment of both principal and interest. the external credit assessment must take into account and reflect the entire amount of credit risk exposure the bank has with regard to all payments owed to it. (ii) the clean-up call must not be structured to avoid allocating losses to credit enhancements or positions held by investors or otherwise structured to provide credit enhancement. Furthermore. For synthetic securitization. d) A bank must apply external credit assessments from eligible ECAIs consistently across a given type of securitization exposure. b) The external credit assessments must be from an eligible ECAI as recognized by the bank’s national supervisor in accordance with Part III. as defined in paragraph 23. The capital treatment of implicit support. When a bank provides implicit support to a securitization. and that inability is not the result of an impairment in the SPE’s credit quality or in the credit 1 The notations follow the rating symbols used by Standard & Poor's. and credit risk mitigants are identified separately.31 paragraph 47 of Part III. Banks must deduct from Tier 1 capital any increase in equity capital resulting from a securitization transaction.B to recognize the hedge. Q-46 08. F. 25. no additional capital recognition is permitted.and unrated Risk weight 20% 50% 100% Deduction from capital (50% from Tier 1 and 50% from Tier 2) 22. at a minimum. net of the amount that must be deducted from Tier 1 as in paragraph 23. Credit AAA to A+ to A. f) In the situation where a credit risk mitigant is not obtained by the SPE but rather applied to a specific securitization exposure within a given structure (e. However. In order to avoid any double counting. except in the cases below. whereupon more than one SPE across different transactions are unable to roll over maturing commercial paper. respectively. a 100% CCF must be applied. such as that associated with expected future margin income resulting in a gainon-sale that is recognized in regulatory capital. The mapping of ratings of all recognized external rating agencies is in Part III. the bank is required to disclose publicly that (a) it has provided non-contractual support and (b) the capital impact of doing so. 23. A CCF of twenty percent (20%) and fifty percent (50%) will be applied to eligible liquidity facilities as defined in paragraph 9 above with original maturity of one year or less and more than one year.g. banks must apply a credit conversion factor (CCF) and then risk weight the resultant credit equivalent amount. Credit enhancing IOs (interest only).C Q Regulations Appendix Q-46 .e. if an external rating of the facility itself is used for risk weighting the facility. Such an increase in capital is referred to as a “gain-on-sale” for the purposes of the securitization framework.APP.12. A zero percent (0%) CCF may be applied to eligible liquidity facilities that are only available in the event of a general market disruption (i. If the CRM provider is not an eligible guarantor.. securitizations of revolving exposures. off-balance sheet securitization exposures will receive a CCF of 100%. Additionally. are to be deducted fifty percent (50%) from Tier 1 capital and fifty percent (50%) from Tier 2 capital. Furthermore.. liquidity facilities. it must.BBB+to Below BBBassessment1 AABBB. the bank must treat the exposure as if it is unrated and then use the CRM treatment outlined in Part III. 28. hold capital against all of the exposures associated with the securitization transaction as if they had not been securitized. 26. Risk-weighting 21. the risk weight associated with that external credit assessment should be used. Deductions from capital may be calculated net of any specific provisions taken against the relevant securitization exposures. banks would not be permitted to recognize in regulatory capital any gain-on-sale.B and is reflected in the external credit assessment assigned to a securitization exposure(s). As a general rule. the covered securitization exposures should be treated as unrated.Page 30 Manual of Regulations for Non-Bank Financial Institutions . 27. The risk-weighted asset amount of a securitization exposure is computed by multiplying the amount of the position by the appropriate risk weight determined in accordance with the following table. ABS tranche). 24. For off-balance sheet exposures. As described below. A line is considered uncommitted if it is unconditionally cancelable without prior notice. revolving corporate facilities). 29.APP...Page 31 . An originating bank is required to hold capital against the investors’ interest (i. such as material changes in tax laws or regulations. excess spread trapping point). 34. banks must compare the three-month average excess spread defined in paragraph 11 to the point at which the bank is required to trap excess spread as economically required by the structure (i.12. 31. and must rank at least pari passu with the claims of holders of the capital market instruments. commercial paper) when there is a general market disruption must be secured by the underlying assets. 30.. the funds advanced by the bank to pay holders of the capital market instruments (e.g. In cases where such a transaction does not require excess spread to be trapped. 33. the trapping point is deemed to be 4.e. though. the CCFs depend upon whether the early amortization repays investors through a controlled or non-controlled mechanism. A CCF of zero percent (0%) will be applied to undrawn amount of eligible servicer cash advance facilities.g.g.e. credit card receivables) that have either controlled or non-controlled early amortization features.g.. and b) The exposures sold are of a revolving nature. Originating banks. The bank must divide the excess spread level by the transaction’s excess spread trapping point to determine the appropriate segments and apply the corresponding conversion factors. credit card receivables) or other credit lines (e. For uncommitted retail credit lines (e.5 percentage points. b) Transactions of revolving assets containing early amortization features that mimic term structures (i. To qualify for this treatment. the conditions provided in paragraph 9 must be satisfied. as outlined in the following tables: Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 . 32. that are unconditionally cancellable without prior notice. They also differ according to whether the securitized exposures are uncommitted retail credit lines (e.31 quality of the underlying exposures).. c) Structures where a bank securitizes one or more credit line(s) and where investors remain fully exposed to future draws by borrowers even after an early amortization event has occurred.. Additionally. against both the drawn and undrawn balances related to the securitized exposures) when: a) It sells exposures into a structure that contains an early amortization feature.e. Q-46 08. where the risk of the underlying facilities does not return to the originating bank). are not required to calculate a capital requirement for early amortizations in the following situations: a) Replenishment structures where the underlying exposures do not revolve and the early amortization ends the ability of the bank to add new exposures. These involve exposures where the borrower is permitted to vary the drawn amount and repayments within an agreed limit under a line of credit (e. and d) The early amortization clause is solely triggered by events not related to the performance of the securitized assets or the selling bank.g.. as defined in paragraph 10 above. credit card receivables and corporate loan commitments).. 10% CCF less than 75% to 50% of trapping point .All other securitized revolving exposures with controlled and non-controlled early amortization features will be subject to CCFs of ninety percent (90%) and 100%. or (ii) the capital requirement that would apply had the exposures not been securitized. as if the exposures had not been securitized. Manual of Regulations for Non-Bank Financial Institutions .33% of 100% CCF trapping point or trapping point or more – 0% CCF more – 0% CCF less than 133. Q Regulations Appendix Q-46 . In addition.12. Q-46 08.31 Retail credit lines Controlled Non-controlled 3-month average Credit conversion 3-month average Credit conversion excess spreadfactor (CCF) excess spreadfactor (CCF) credit conversion credit conversion factor (CCF) factor (CCF) Uncommitted Committed Uncommitted Committed 133. against the off-balance sheet exposures. The resultant credit equivalent amount shall then be applied a risk weight applicable to the underlying exposure type. the total capital charge for all of its positions will be subject to a maximum capital requirement (i. The CCF will be applied to the amount of the investors’ interest.33% to 100% of trapping point – 5% CCF less than 100% to 75% of trapping point – 2% CCF less than 100% to 75% of trapping point – 15% CCF less than 75% to 50% of trapping point .50% CCF less than 50% to 25% of trapping point . For a bank subject to the early amortization treatment.33% to 100% of trapping point – 1% CCF less than 133.33% of 90% CCF 133.APP. 36. a ‘cap’) equal to the greater of (i) that required for retained securitization exposures.e. respectively. banks must deduct the entire amount of any gain-on-sale and credit enhancing IOs arising from the securitization transaction in accordance with paragraphs 23 and 25..20% CCF less than 50% of trapping point 100% CCF less than 25% of trapping point 40% Non-retail credit lines 90% CCF 90% CCF 35.Page 32 100% CCF 100%CCF 37. Where guarantees or credit derivatives fulfill the minimum operational requirements as specified in Part III. financial instruments must either be free of any restrictive covenants on their tradability or able to be hedged completely. Collateral in this context refers to that used to hedge the credit risk of a securitization exposure rather than the underlying exposures of the securitization transaction.B may be recognized. In addition. The risks addressed in these guidelines are: a) The risks pertaining to interest raterelated instruments and equities in the trading book. A. Credit risk mitigation 38. 43.31 G. the right to receive cash or another financial asset. A financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. the capital requirement will be determined in accordance with paragraphs 50 to 54. Credit protection provided by the entities listed in paragraph 47.B. Maturity mismatches 44. positions should be frequently and accurately valued. Positions held with trading intent are those held intentionally for short-term resale and/or with the intent of benefiting from actual or expected short-term price movements or to lock in arbitrage profits.12. A bank providing protection to an unrated credit enhancement must treat the credit protection provided as if it were directly holding the unrated credit enhancement. The treatment below applies to a bank that has obtained or given a credit risk mitigant on a securitization exposure. A trading book consists of positions in financial instruments held either with trading intent or in order to hedge other elements of the trading book.APP. respectively.B. Q-46 08. A financial liability is the contractual obligation to deliver cash or another financial asset or to exchange financial liabilities under conditions that are potentially unfavorable. A bank other than the originator providing credit protection to a securitization exposure must calculate a capital requirement on the covered exposure as if it were an investor in that securitization. To be eligible for trading book capital treatment. Market risk is defined as the risk of losses in on. Part III. Collateral 39. SPEs cannot be recognized as eligible guarantors. Market risk-weighted assets 1.B and Part IV. and b) Foreign exchange risk throughout the bank. Definition of the trading book 2. Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 .and off-balance sheet positions arising from movements in market prices. or the contractual right to exchange financial assets on potentially favorable terms. Part III. and the portfolio should be actively managed. For the purpose of setting regulatory capital against a maturity mismatch.Page 33 . 41. banks can take account of such credit protection in calculating capital requirements for securitization exposures. guarantees. 3. Capital requirements for the collateralized or guaranteed/protected portion will be calculated according to Part III. Financial instruments include both primary financial instruments (or cash instruments) and derivative financial instruments. 4. Part VI.B and Part IV. A financial asset is any asset that is cash. Guarantees and credit derivatives 40. 42. Credit risk mitigants include collateral. Part III. Collateral pledged by SPEs may be recognized. except for synthetic securitizations which will be determined in accordance with paragraph 16. Eligible collateral is limited to that recognized in paragraph 34. or an equity instrument. and credit derivatives. subject to certain modifications as outlined in the succeeding paragraphs. < 24 months Residual maturity > 24 months All other debt securities/ derivatives 0.g.00% 1 The notations follow the rating symbols used by Standard & Poor’s.00% AAA to AAAAA A+ to BBBAA+ to BBBResidual maturity < Residual maturity < 6 months 6 months Residual maturity > Residual maturity > 6 months. In addition to the above documentation requirements. etc. This Credit ratings of debt securities/derivatives 1 issued by sovereigns Credit ratings of debt securities/derivatives issued by MDBs would include assessing the quality and availability of market inputs to the valuation process.60% 8.25% 1. The following will be the basic requirements for positions eligible to receive trading book capital treatment: a) Clearly documented trading strategy for the position/instrument or portfolios. sizes of positions traded in the market. For purposes of this framework. Q-46 08.00% LGU Bonds covered by Deed of Assignment of Internal Revenue Allotment and guaranteed by LGU Guarantee Corporation 4. v.5 of the MORB. the bank should also submit to the BSP a documentation of its systems and controls for the prudent valuation of positions in the trading book including the valuation methodologies. dealers have the autonomy to enter into/manage the position within agreed limits and according to the agreed strategy. positions arising from client servicing (e. as follows: Credit ratings of debt securities/derivatives issued by other entities Unadjusted specific risk weight Php-denominated debt securities/derivatives issued by the Philippine NG and BSP 0. position limits are set and monitored for appropriateness. Measurement of capital charge 8. which must include: i.Page 34 Manual of Regulations for Non-Bank Financial Institutions . 7. Q Regulations Appendix Q-46 . c) Clearly defined policy and procedures to monitor the positions against the bank’s trading strategy including the monitoring of turnover and stale positions in the bank’s trading book. 6.12. positions are marked to market at least daily. B. and when marking to model the parameters must be assessed on a daily basis. < 24 months 6 months. 5.C. 1116. ii. 9. b) Clearly defined policies and procedures for the active management of the position. approved by senior management (which would include expected holding horizon). The market risk capital charge shall be computed according to the methodology set under Subsec. iii. positions are actively monitored with reference to market information sources (assessment should be made of the market liquidity or the ability to hedge positions or the portfolio risk profiles). as may be appropriate.00% AAA to BBBResidual maturity < 6 months Residual maturity > 6 months. level of market turnover. matched principal brokering) and market making. < 24 months Residual maturity > Residual maturity > 24 months 24 months 0. positions are managed on a trading desk.31 and may include for example proprietary positions. positions are reported to senior management as an integral part of the institution’s risk management process.APP. debt securities/derivatives issued by sovereigns include foreign currency denominated debt securities/derivatives issued by the Philippine NG. The documentations of the basic requirements of paragraph 5 should be submitted to the BSP.00% 1. and vi. iv. The mapping of ratings of all recognized external rating agencies is in Part III. The specific risk weights for trading book positions in debt securities and debt derivatives shall depend on the third party credit assessment of the issue or the type of issuer. org).e.31 10. Operational risk-weighted assets A.bis. people and systems or from external events. at a minimum: a) Its board of directors and senior management are actively involved in the oversight of the operational risk management framework. i. Definition of operational risk 1. A security. Banks should be guided by the Basel Committee on Banking Supervision’s recommendations on Sound Practices for the Management and Supervision of Operational Risk (February 2003). Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes.Page 35 . as defined under Part II of this Appendix. In any given year. which is the subject of a repo-style transaction. Under the basic indicator approach. Measurement of capital charge 3. Operational risk capital charge is calculated as the three (3)-year average of the simple summation of the regulatory capital charges across each of the business lines in each year. In order to qualify for use of the standardized approach. 6. Part VII. two-thirds (2/3) from 01 January 2008.B. Foreign currency denominated debt securities/derivatives issued by the 1 Philippine NG and BSP shall be risk-weighted according to the table above: Provided. to be reported by the seller/lender. Banks that have the capability to map their income accounts into the various business lines given in paragraph 7 may use the standardized approach subject to prior BSP approval2.. 605 dated 05 March 2008) C.. (As amended by Circular No. In addition to capital charge for specific and general market risk. Market risk-weighted assets are determined by multiplying the market risk capital charge by ten (10) [i. b) It has an operational risk management system that is conceptually sound and is implemented with integrity. Figures for any year in which annual gross income is negative or zero should be excluded from both the numerator and denominator when calculating the average. a credit risk capital charge should be applied to banks’ counterparty exposures in repostyle transactions and OTC derivatives contracts.APP. 12. 2 Refer to Appendix Q-46b for the Guidelines on the Use of the Standardized Approach in Computing the Capital Charge for Operational Risk Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 . The computation of the credit risk capital charge for counterparty exposures arising from trading book positions are discussed in paragraphs 35 to 41 of Part III. That only one-third (1/3) of the applicable risk weight shall be applied from 01 July 2007.12. negative capital charges (resulting from negative gross income) in any business line may offset positive capital charges in other 1 Warrants paired with ROP Global Bonds shall be exempted from capital charge for market risk only to the extent of bank's holdings of bonds paired with warrants equivalent to not more than fifty (50%) of total qualifying capital. Q-46 08. The same may be downloaded from the BIS website (www. In computing for the operational risk capital charge. 2. 5. the reciprocal of the minimum capital ratio of ten percent (10%)]. and c) It has sufficient resources in the use of the approach in the major business lines as well as the control and audit areas. This definition includes legal risk.e. a bank must satisfy BSP that. banks must hold capital for operational risk equal to fifteen percent (15%) of the average gross income over the previous three (3) years of positive annual gross income. 11. and the full risk weight from 01 January 2009. Banks may use either the basic indicator approach or the standardized approach. shall be treated as if it were still owned by the seller/lender of the security. 4. B. but excludes strategic and reputational risk. Measurement of risk-weighted assets 13. Disclosures in the Annual Reports and Published Statement of Condition 1.. real estate. privatizations. underwriting. segregated. The resultant operational risk capital charge is to be multiplied by 125% before multiplying by ten (10) [i. where the aggregate capital charge across all business lines within a given year is negative. retail. then figures for that year shall Business lines Level 1 Level 2 Corporate Finance Corporate finance Municipal/Government Finance Advisory Services Sales Market Making Trading and Sales Proprietary Positions Treasury Retail Banking be excluded from both the numerator and denominator. This section lists the specific information that banks have to disclose. (As amended by M-2007-019 dated 21 June 2007) Part VIII. export finance. closed.APP. securitization. Asset Management Management Non-Discretionary institutional. is defined as net interest income plus non-interest income. d) exclude gains/(losses) from the sale/redemption/derecognition of nontrading financial assets and liabilities. depository receipts. c) include fees and commissions. equity. brokerage. open. Measurement of risk-weighted assets 9. debt (government. for the purpose of computing for operational risk capital charge. banking services. funds transfer. guarantees. lending. miscellaneous income. IPO. funding. own position securities. syndications. trust and estates Private Banking Private lending and deposits. factoring. investment advice Card Services Merchant/commercial/corporate cards. commodities. and Q Regulations Appendix Q-46 . equity. etc.e. private equity Fund Management Retail Brokerage Retail brokerage Execution and full service 8.) C. Gross income. bills of exchange Payment and External Clients Payments and collections. secondary private placements Fixed income. including fees paid to outsourcing service providers.12. credit. banking services. high yield). at Manual of Regulations for Non-Bank Financial Institutions .Page 36 Beta factors 18% 18% 12% 15% 18% 15% 12% 12% f) include other income (i. rental income. clearing Settlement and settlement Custody Escrow. research. lending and repos. leasing. whether pooled. private labels and retail Commercial Commercial Project finance. 7. However. prime brokerage Retail lending and deposits. Q-46 08. the reciprocal of the minimum capital ratio of ten percent (10%)]..31 business lines without limit. securities lending (customers) corporate actions Agency Services Corporate Agency Issuer and paying agents Corporate Trust Discretionary Fund Discretionary and non-discretionary fund management. e) exclude gains/(losses) from sale/ derecognition of non-financial assets. trade Banking Banking finance. b) be gross of operating expenses. The business lines and their corresponding beta factors are listed below: Activity Groups Mergers and acquisitions. This measure should: a) be gross of any provisions for losses on accrued interest income from financial assets.e. foreign exchanges. debt. Retail Banking trust and estates. and iii. b) Total credit risk exposure after risk mitigation. as well as those that are deducted from capital. e) Types of eligible credit risk mitigants used including credit derivatives. ii. 2. f) For banks with exposures to securitization structures. Accounting policies for these activities. c) The scope and nature of risk reporting and/or measurement systems. banks must describe their risk management objectives and policies. b) Tier 2 capital and a breakdown of its components. and h) Total and Tier 1 CAR on both solo and consolidated bases. broken down by: i. and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants. c) Total credit risk-weighted assets broken down by type of exposures as defined in Part III. b) The structure and organization of the relevant risk management function. adjustments in the risk weights of collateralized or guaranteed exposures) in respect of any credit risk mitigation techniques. A. d) Names of external credit assessment institutions used. aside from the general disclosure requirements stated in paragraph 4. For each separate risk area (credit. and d) Policies for hedging and/or mitigating risk. Capital structure and capital adequacy 3. market. operational. paragraph 4 which should also be disclosed in banks’ quarterly Published Statement of Condition.12.. net of specific provision) broken down by type of exposures as defined in Part III.e. e) Capital requirements for credit risk (including securitization exposures). aside Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 . and the types of exposures for which they were used. Total outstanding exposures securitized by the bank. These enhanced disclosures shall commence with Annual Reports for financial year 2007 and quarterly published statement of condition from end-September 2007. g) Capital requirements for operational risk. including: a) Strategies and processes. Q-46 08. g) For banks that provide credit protection through credit derivatives. broken down by exposure type. d) Total qualifying capital. Full compliance of these disclosure requirements is a prerequisite before banks can obtain any capital relief (i.Page 37 . the following minimum information have to be disclosed: i. Risk exposures and assessments 4.e. B. Credit risk 5. risk buckets. Total amount of securitization exposures retained or purchased. c) Deductions from Tier 1 fifty percent (50%) and Tier 2 fifty percent (50%) capital. f) Capital requirements for market risk. except Item "h" below which should also be disclosed in banks’ quarterly published statement of condition: a) Tier 1 capital and a breakdown of its components (including deductions solely from Tier 1). interest rate risk in the banking book). the following information with regard to credit risk have to be disclosed in banks’ Annual Reports: a) Total credit risk exposures (i. and ii. in their Annual Reports.31 a minimum. Aside from the general disclosure requirements stated in paragraph 4. The following information with regard to banks’ capital structure and capital adequacy shall be disclosed in banks’ Annual Reports.APP. except Item "h". type of exposures as defined in Part III. principal amount for on-balance sheet and credit equivalent amount for off-balance sheet.. with analysis of important outliers in backtest results.12. Part IX. the following information have to be disclosed: i. banks Q Regulations Appendix Q-46 . A comparison of VaR estimates with actual gains/losses experienced by the bank. Sanctions for non-reporting of CAR breaches 1. and b) For banks using the internal models approach. and b) The increase (decline) in earnings or economic value (or relevant measure used by management) for upward and downward rate shocks according to internal measurement of interest rate risk in the banking book. equity. Aside from the general disclosure requirements stated in paragraph 4. Any willful violation of the above will be considered as a serious offense for purposes of determining the appropriate monetary penalty that will be imposed on the CEO. foreign exchange.Page 38 have to disclose their operational risk-weighted assets in their Annual Reports. It is the responsibility of the bank CEO to cause the immediate reporting of CAR breaches both to its Board and to the BSP.31 from the general disclosure requirements stated in paragraph 4. the following information with regard to market risk have to be disclosed in banks’ Annual Reports: a) Total market risk-weighted assets broken down by type of exposures (interest rate. iii. Aside from the general disclosure requirements stated in paragraph 4. Interest rate risk in the banking book 8. The characteristics of the models used. A description of the approach used for backtesting/validating the accuracy and consistency of the internal models and modeling processes. Enforcement A. In addition. A description of stress testing applied to the portfolio. It is likewise the CEO’s responsibility to ensure the accuracy of CAR calculations and the integrity of the associated monitoring and reporting system. Manual of Regulations for Non-Bank Financial Institutions . Market risk 6. c) Third offense – 1 month suspension without pay. and options). the CEO shall be subject to the following non-monetary sanctions: a) First offense – warning. total outstanding amount of credit protection given by the bank broken down by type of reference exposures should also be disclosed.APP. ii. iv. aside from the general disclosure requirements stated in paragraph 4. Aside from the general disclosure requirements stated in paragraph 4. including assumptions regarding loan prepayments and behavior of non-maturity deposits. The scope of acceptance by the BSP. Operational risk 7. and d) Further offense – disqualification. and h) For banks with investments in other types of structured products. total outstanding amount of other types of structured products issued or purchased by the bank broken down by type should also be disclosed. b) Second offense – reprimand. Q-46 08. the following information with regard to interest rate risk in the banking book have to be disclosed in banks’ Annual Reports: a) Internal measurement of interest rate risk in the banking book. and v. and frequency of measurement. c) Third offense – 1 month suspension of CEO without pay. and d) Further offense – possible disqualification of the CEO and/or the Board. b) Second offense – reprimand on CEO and the Board.31 B. 538 dated 04 August 2006.APP. 560 dated 31 January 2007 and M-2006-022 dated 24 November 2006) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46 . the CEO and the Board shall be subject to the following non-monetary sanctions: a) First offense – warning on CEO and the Board. (Circular No. 605 dated 05 March 2008. Sanctions for non-compliance with required disclosures 2. Circular No. 588 dated 11 December 2007. In addition. M-2007-019 dated 21 June 2007. Willful non-disclosure or erroneous disclosure of any item required to be disclosed under this framework in either the Annual Report or the Published Statement of Condition shall be considered as a serious offense for purposes of determining the appropriate monetary penalty that will be imposed on the bank. as amended by Circular Nos. Q-46 08.12.Page 39 . 31 GUIDELINES ON THE CAPITAL TREATMENT OF BANKS’ HOLDINGS OF ROP GLOBAL BONDS PAIRED WITH WARRANTS (Appendix to Sec. (Circular 588 dated 11 December 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46a .Page 1 .12. That the zero percent (0%) risk weight shall be applied only to QB’s holdings of paired Bonds equivalent to not more than fifty percent (50%) of the total qualifying capital.APP. 4116Q) A QB’s holdings of ROP Global Bonds that are paired with Warrants (paired Bonds). as defined under Appendix Q-46. Q-46a 07. which give the QB the option or right to exchange its holdings of ROP Global Bonds into Peso-denominated government securities upon occurrence of a predetermined credit event. shall be risk weighted at zero percent (0%): Provided. etc. Scope and nature of risk reporting/ assessment systems e. debt (government. auto loans. The above criteria should be supported by a written documentation of the board-approved operational risk management framework of the QB which should cover the following: a. credit cards. underwriting. and. research. It has an operational risk management system that is conceptually sound and is implemented with integrity. securitization.Page 1 .31 GUIDELINES ON THE USE OF THE STANDARDIZED APPROACH IN COMPUTING THE CAPITAL CHARGE FOR OPERATIONAL RISKS (Appendix to Sec. Strategies and processes c. government departments. NBFIs. Overall objectives and policies b.This includes treasury operations. b. Operational risk management structure and organization d.This includes arrangements and facilities [e.g.This includes financing arrangements for commercial enterprises. The BSP will only give approval to an applicant QB if at a minimum: a. (4) Commercial banking. 4116Q) QBs applying for the use of the Standardized Approach (TSA) must satisfy the following requirements/ criteria: General Criteria 1.. high yield). (3) Retail banking. as follows: (1) Corporate finance. 2. retail clients and small businesses such as personal loans. QBs must adopt the following principles for mapping their business activities to the appropriate business lines: (a) Activities or products must be mapped into only one (1) of the eight (8) standard business lines. Its board of directors and senior management are actively involved in the oversight of the operational risk management framework. They must also put in place a review process to adjust these policies and criteria for new or changing business activities or products as appropriate. 3. This operational risk management framework of the QB should be disclosed in its annual report. Policies and procedure for mitigating operational risk 4. The use of TSA shall be conditional upon the explicit prior approval of the BSP.12. secondary private placements] provided to large commercial enterprises.APP. QBs using TSA in computing operational risk capital charge must develop specific written policies and criteria for mapping gross income of their current business lines into the standard business lines prescribed under Appendix Q-46. as provided under Appendix Q-46. as well as other facilities such as trust and estates and investment advice. equity. mergers and acquisitions. (2) Trading and sales. It has sufficient resources in the use of the approach in the major business lines as well as in the control and audit areas. syndications. etc. 6. buying and selling of securities. Initial Public Offering (IPO). Q-46b 07. c.This includes financing arrangements for private individuals. real Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46b . privatizations. Mapping of Gross Income 5. multinational companies. including project finance. currencies and others for proprietary and client account. 12. If the activity is ancillary to two (2) or more business lines. That the sum of gross income for the eight business lines must still be equal to the gross income as would be recorded if the QB uses the Basic Indicator Approach (BIA). factoring.Page 2 Manual of Regulations for Non-Bank Financial Institutions .This includes brokering services provided to customers that are retail investors rather than institutional investors. (8) Retail brokerage. leasing. inter-bank funds transfer. with the appropriate time lines. (a) Any activity or product which cannot be readily mapped into one (1) of the standardized business lines but which is ancillary1 to a business line shall be allocated to the business line to which it is ancillary. clearing and settlement. Any ancillary activity to that activity will follow the same business line treatment. In computing the gross income of the QB. institutional. 7. open or closed basis under a mandate. (d) The process by which QBs map their business activities into the standardized business lines must be regularly reviewed by party independent from that process. retail. the amounts of the income accounts reported in the operational risk template2 must be equal to the year-end balance reported in the FRP.APP. an objective criteria or qualification must be made to allocate the annual gross income derived from that activity to the relevant business lines. providing custodial services. export finance. Any discrepancy must be properly accounted and supported by a reconciliation statement.31 estate. Q-46b 07. (5) Payment and settlement. (c) Written policies and criteria for mapping business activities and their corresponding gross income into the standard business lines as described in paragraphs 5 to 7. (7) Asset management. trade finance. guarantees. Application Process for the Use of TSA 8. etc. (b) Any activity that cannot be mapped into a particular business line and is not an 1 ancillary activity to a business line shall be mapped into one (1) of the business lines with the highest associated beta factor eighteen percent (18%). (6) Agency services. QBs applying for the use of TSA should submit the following documents to their respective Central Points of Contact (CPCs) of the BSP: (a) An application letter signed by the president/CEO of the QB signifying its intention to use TSA in computing the capital charge for operational risk. segregated. Reversion from TSA to BIA 10.This refers to activities of QBs acting as issuing and paying agents for corporate clients. A QB which has been approved to use TSA in computing its capital charge 1 Ancillary function is an activity/function that is not the main activity of a given business line but only as a support activity 2 Part V of the revised CAR report template Q Regulations Appendix Q-46b . etc. The BSP may require a six (6)-month period of initial monitoring of a QB’s TSA before it is used for supervisory capital purposes.This includes activities relating to payments and collections. bills of exchange. (d) An overall roll-out plan of the QB including project plans and execution processes. (c) QBs may use internal pricing methods to allocate gross income between business lines: Provided.This includes managing funds of clients on a pooled. (b) Written documentation of the Board-approved operational risk management framework as described in paragraph 3. Initial Monitoring Period 9. (M-2007-019 dated 21 June 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-46b .Page 3 . the BIA. However..APP. These guidelines shall take effect on 21 July 2007.e.12. but only after a year of using the BIA.31 for operational risk will not be allowed to revert to the simpler approach. if the BSP determines that the QB no longer meets the qualifying criteria for TSA. The QB shall be required to repeat the whole application process should it opt to return to the use of TSA. Q-46b 07. i. it may require the QB to revert to BIA. Internal approvals allowing the trust department to invest in the BSP SDA facility. Trust departments may preterminate their SDA placements. Trust departments may request a statement from the BSP-TD for their outstanding SDA placement as of a specified date. Contact details for the front and back offices. (M-2007-011 dated 08 May 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-47 . A sample confirmation is attached as Appendix Q-47 Annex 1 and Annex 2. 9. Applicable tenors and pricing shall be based on published rates (i. b. Depository institution shall generally follow the existing settlement process for SDA placements with BSP of QBs. 5. Access to the subject BSP facility shall be granted upon receipt by the BSP Treasury Department (BSP-TD) of a letter of request (Appendix 78 Annex 1) for account opening together with the following requirements: a.12.31 GUIDELINES FOR TRUST DEPARTMENTS’ PLACEMENTS IN THE SDA FACILITY OF BSP (Appendix to Subsec. as detailed below shall be applied to the SDA placements of the trust departments separately from the placements of their bank proper.2) The following are the guidelines governing the trust deparments’ placements in the SDA facility of BSP. The pre-termination rate shall apply only to the amount preterminated. If the holding period is fifty percent (50%) or more of the original tenor. c.0 billion up to PI0. The income from the SDA is subject to a twenty percent (20%) final withholding tax 10. either fully or partially. the applicable interest rate for the pre-terminated amount will be the rate dealt on value date less two percent (2%) p. Trading hours shall be from I0:00 am to 3:00 pm for all business days.0 billion BSP published rate Tier Amounts in excess of P5. All trades shall settle on trade date. 11. The minimum placement is P10.APP.0 million.Page 1 . 1. A list of authorized signatories. The trust department will be required to send the transaction confirmation directly to the BSP-TD back office. Q-47 07.a. Tier Tiered Rate Amounts less than or equal to P5. A list of authorized traders. Similarly.e. If the holding period of the SDA placement when it is rate pre-terminated is less than fifty percent (50%) of the original tenor of the said placement. The trust department shall use a depository institution that is a PhilPASS member when placing its funds in the SDA facility. 4. Trust departments may place only once per tenor per day 8. The existing tiering scheme. the applicable interest rate for the pre-terminated amount will be the rate dealt on value date less one percent (1%) p. 7. the trust department shall specify a PhilPASS member to which its principal and interest will be credited at maturity of the SDA placement.0 billion Amounts in excess of PI0.a.0 million with the additional amounts in increments of PI . 4409Q.0 billion Tiered Rate BSP published rate less 2% BSP published rate less 4% 6. the trust department shall instruct said depository institution to debit their account in favor of their SDA with the BSP. 3. in Bloomberg’s CBPHI and Reuters BANGKO page).. 2. On transaction date. and d. and d. b. allowing trust departments to place their funds in the BSP’s Special Deposit Account (SDA) facility. Please find attached the following documents. A list of authorized signatories. the trust department of (name of institution) respectfully request the creation of an account for the said facility.31 Annex 1 (Institution’s Letterhead) Date:_____________________ Mrs.12. Very truly yours. Contract details for the front and back offices. A list of authorized traders. 433 and 518 dated 19 April 2007 and 3 May 2007.Page 2 Manual of Regulations for Non-Bank Financial Institutions . __________________________ (AUTHORIZED SIGNATORY)1 __________________________ (AUTHORIZED SIGNATORY)2 Q Regulations Appendix Q-47 . as required: a. c. Ramona GDT Santiago Managing Director Treasury Department Bangko Sentral ng Pilipinas Dear Madam: Pursuant to Monetary Board Resolution Nos. Internal approvals allowing the trust department to invest in the SDA facility. Ma. Q-47 07.APP. For your kind attention. Very truly yours.APP.Page 3 . please CREDIT the Regular Demand Deposit Account of (name of depository QB) on maturity date the amount of ____________PESOS (P___________). Q-47 07.Domestic Bangko Sentral ng Pilipinas Gentlemen: This is to confirm our Special Deposit Account placement to yourselves as follows: VALUE DATE TERM MATURITY DATE RATE PRINCIPAL AMOUNT GROSS INTEREST WITHHOLDING TAX NET MATURITY VALUE On value date. our funds will come from Regular Demand Deposit account of (name of depository QB). representing full payment of the principal plus interest (net of applicable withholding tax) thereon. ___________________________ (AUTHORIZED SIGNATORY)1 ___________________________ (AUTHORIZED SIGNATORY)2 Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-47 .12.31 Annex 2 (Institution’s Letterhead) Date:_________________ TREASURY DEPARTMENT Treasury Services Group . Accordingly. Placement of tax-exempt accounts in the SDA facility should comply with existing minimum placement and incremental requirements for the SDA facility. Copy of the board resolution duly certified by the corporate secretary authorizing the placement (directly for managed funds or indirectly through designated trustee bank/FI in the case of managed trust funds) in the SDA facility. Sec. b. duly certified by the latter. Shown in Annex 1. the trust department/entity must inform the BSP the exact amount of the tax-exempt placement in the SDA and submit the following supporting documents: a. ( M-2007-038 dated 29 November 2007) Manual of Regulations for Non-Bank Financial Institutions Q Regulations Appendix Q-47a . Sec. On transaction date. gov.APP.2) Section 1. Copy of the relevant ruling from the BIR. 3. Advance copies may be sent through facsimile (facsimile number 523-3348) or electronic mail of BSP-Treasury Back Office personnel (jsiguenza@bsp. affirming the exemption from taxes of the income earned by concerned TEls or accounts from their investments. ph). the tax-exempt placement will be cancelled. Absent the supporting documents by end of the business day. 2. Copy of the covering trust agreement. c. for as long as these are outstanding. Q-47a 07. trust departments must submit the documents specified in Item "2" hereof on or before 04 December 2007 to avail of the exemption from withholding tax. are owned by the specified TEls and are accordingly exempt from said twenty percent (20%) final withholding tax (FWT).31 SDA PLACEMENTS OF TRUST DEPARTMENTS/ENTITIES AS AGENT FOR TAX-EXEMPT INSTITUTIONS (TEI) AND ACCOUNTS (Appendix to Subsection 4409Q.12. For outstanding tax-exempt SDA placements as of 01 November 2007.Page 1 . Certification from the trust department that such placements. and d. Ramona GDT Santiago Managing Director Treasury Department Bangko Sentral ng Pilipinas A. Manila 1004 Dear Ms. Ma. ____________. _________. _________.APP. In the event that the BSP is assessed for deficiency final withholding tax on the above placements by the Bureau of Internal Revenue (BIR). Santiago: This refers to the placement/s amounting to (Peso Amount) placed in the BSP’s SDA facility at (SDA rate) % per annum for value (Value date) to mature on (Maturity date). Mabini corner P. (rows may be increased depending on number of placements) TOTAL This is to further certify that above placements will be owned by the specified TEIs/tax-exempt funds for as long as these placements are outstanding. issued at _________________.Page 2 Manual of Regulations for Non-Bank Financial Institutions . on _____________________. 2. Q-47a 07. 200___ Q Regulations Appendix Q-47a . Book No. Series of _________.12. No. Ocampo Sts. (NBFI name) shall be liable for and pay such deficiency taxes and surcharges. (NBFI name) hereby authorizes the BSP to automatically debit its regular demand deposit account with the BSP for payment or reimbursement of any such deficiency taxes and surcharges. and date) 1. This is to certify that the above placement/s is/are transacted on behalf of the following TaxExempt Institutions (TEI) or tax-exempt funds and interest income thereon are exempt from the twenty percent (20%) final withholding tax based on the corresponding BIR rulings: Tax Exempt Institutions Basis Amount (BIR Ruling No. and/or indemnify/reimburse the BSP for such deficiency taxes and surcharges that the latter may eventually pay to the BIR as a result thereof. HEAD OF TRUST DEPARTMENT SUBSCRIBED AND SWORN to before me this ____ day of____________________ 2007 at ______________________. 3. Sincerely yours. Page No. affiant exhibiting to me his Community Tax Certificate/Passport No. Notary Public Doc.31 Annex 1 (Trust Entity/Department’s Letterhead) Date:______________________ Ms. Further. Q-48 08. other fiduciary and investment management accounts that are desirable and consistent with the TE’s risk strategies and the specific conditions for accepting new accounts. the TE shall review the underlying instrument (trust agreement or contract) for potential conflicts of interest. whether the TE can properly handle such assets and to assess any possible issue/problem which may arise with respect to such assets before acceptance of such assets and/or assumption of the trust. the TE shall take appropriate action to address such condition before the account is accepted. III.Page 1 . authorized by the board of directors or its functional oversight equivalent.APP. Prior to the acceptance of a fiduciary account. fiduciary or investment management relationship. These innovations have allowed trust entities to expand the scope of trust products and services offered to customers. As trust entities grow more diverse.31 BASIC STANDARDS IN THE ADMINISTRATION OF TRUST. It shall be covered by a written policy which shall contain. II. or subordinate officer of the trust department. Pre-acceptance account review This review must document that the trust entity (TE) can effectively administer the account. Statement of policy It is the policy of the BSP to provide adequate level of protection to investors who. and approved by the Trust Committee. Non-financial/non-traditional assets (i. necessarily policies and procedures as well as risk management practices must keep pace. real estate and the like) which are more likely to be illiquid shall be carefully reviewed prior to acceptance to ensure that the TE only accepts accounts which hold assets it may be able to properly manage. the types of trust. the TE shall perform a review and evaluation of all assets to be delivered to the TE to determine how these would serve the client's objectives. under a fiduciary arrangement. In cases where the TE is chosen as a successor trustee or investment manager. The review process entails the thorough and complete review of the client’s/account’s characteristics and investment profile. including the assets/ properties to be contributed/ delivered. in the case of foreign QBs and institutions. 4401Q) I. If such conflict exists. The basic standards would provide common processes for an efficient operation and administration of trust. Introduction Trust and other fiduciary business and investment management activities have evolved with the changes in the financial market and advancement in technology. the BSP prescribes basic standards for the efficient administration and operation of trust and other fiduciary business and investment management activities. or the Trust Officer. engage the services or avail of products of trust entities which are required to observe prudence in the exercise of their fiduciary responsibility. OTHER FIDUCIARY AND INVESTMENT MANAGEMENT ACCOUNTS (Appendix to Subsec. Along this line. Appendix Q-48 . other fiduciary and investment management activities across the trust industry.12..e. other fiduciary and investment management accounts are meant to address the significant areas of operations and provide minimum set of requirements and procedures: A. among other things. Account acceptance and review processes 1. thus increasing their exposure to various risks. Standards The basic standards in the administration of trust. the TE shall make an assessment of the client’s level of financial sophistication and consider factors relevant to the creation and management of.e. who have all successfully undergone the required certification/accreditation/licensing process. • Minimum information required for CSA: i.APP. at a minimum. The client may opt to open several accounts. an investment portfolio. and the account’s investment parameters. Appendix Q-48 . the identity of beneficiaries. the vehicle to be used. include the following processes and/or requirements: (1) Account opening process. the objective(s) of the engagement. Q-48 08. shall be undertaken on a per client basis. risk tolerance. suited to a particular client or investment account. the UIT accredited marketing personnel or the officer of the trust department conducting the client profiling. fiduciary or investment product or service. The account opening process shall at least involve the following: a. ii. or of similar investment circumstances. or participation in. iii.. 1 i. each one with specific investment objectives separate and distinct from the other accounts. Investment experience. It shall provide prospective clients with client suitability questionnaire and require them to accomplish the same prior to the acceptance of the account and execution of a transaction. Acceptance policies for new accounts shall. For this purpose.31 2. tax considerations and regulatory requirements. Investment objective. such as but not limited to. The profiling process. the client. Minimum personal/institutional information that are unique to a natural or juridical client. financial constraints. • Client suitability assessment The TE shall obtain adequate information from the client to determine the appropriateness of the fiduciary product/ service to be provided and ensure the suitability of the investment product/ portfolio/strategy to be recommended to each client. fiduciary and investment management accounts. Personal/Institutional data.12. In the case of unit investment trust funds (UITFs). A clear statement or definition of the client’s investment goals/purposes to be achieved through a particular trust. This process defines the TE’s policies and procedures for client/account identification. Establishment and post-acceptance review. A list of various types of investment the prospective client is familiar with. The same client suitability assessment process shall be applied by the TE for directional accounts. other fiduciary and investment management accounts (except court trusts) via a duly acknowledged Client Suitability Assessment (CSA). which aims to provide the TE with information leading to the prudent design of investment packages. which shall emphasize the level of risk tolerance of the client. The trust officer or other authorized personnel of the trust department shall conduct the account opening process for trust. only authorized branch managers/officers as well as UIT marketing personnel. basic characteristics of the clients’ investment and experience. Client profiling shall be performed for all UITF and regular trust.Page 2 Manual of Regulations for Non-Bank Financial Institutions . consistent with the TE’s “know your customer” (KYC) policy for compliance with anti-money laundering regulations. to be documented through a CSA Form signed by the concerned parties1. The CSA Form shall be acknowledged or confirmed by the trust officer or other officer of the trust department autorized by board of directors. where applicable. may perform said process for UITF clients. acquired from actual/ personal investment experience. which shall also cover demographics and KYC information. identification of the needs of the client. the specific needs and unique circumstances of the client and/or beneficiary/(ies). and approximate portion of total assets administered/managed. deposits with local QBs/ branches of foreign QBs operating in the Philippines.. Manual of Regulations for Non-Bank Financial Institutions Appendix Q-48 . ii. on the basis of the given information. the characteristics of the order (e. Knowledge and financial situation. Investment objective. a description of the following: i. For purposes of investing in a UITF.g. a client wants an investment strategy where the primary objective is to prevent the loss of principal at all times and where the fund is invested in deposits with local QBs/ branches of foreign QBs operating in the Philippines and with FIs in any foreign country: Provided. Risk tolerance. Investment time frame and liquidity requirement. v. Aggressive. Conservative.. Allow the TE to classify clients in accordance with its own pre-set internal risk classification. It shall communicate to prospective clients the results of the assessment. and deposits with financial institutions in any foreign country: Provided. and where the client prefers investment grade and highly liquid assets. Client wants a portfolio which may provide appreciation of capital over time and client is willing to accept higher risks involving volatility of returns and even possible loss of investment in return for potential higher long-term results. the TE must take into account the knowledge. Based on the results of the CSA. That said FI has at least an investment grade credit rating from a reputable international credit rating agency. Client wants a portfolio which may provide potential returns on investment that are higher than the regular traditional deposit products and client is aware that a higher return is accompanied by a higher level of risk. but need not be limited to the following: i. and explain the reasons why. size or price specifications) or the frequency of the trading. Such assessment is necessary as there are significant risks involved on financial investments (e.31 iv. iii. investment experience. Client is willing to expose the funds to a certain level of risks in consideration for higher returns. classification of clients by the TE may include. That said FIs has at least an investment grade credit rating from a reputable international credit rating agency. and investment objectives. the type of transaction (e. derivatives).APP. It must include. Client wants an investment strategy where the primary goal is to prevent the loss of principal at all times. The IPS is a clear reference frame for investment decisions and must be based on the investment objectives and risk tolerance of the client. its recommendation is to the best interest of the client as of a defined timeframe. Investment strategy-indicating how assets will be allocated indicating the agreed portfolio mix. at a minimum. sale of options). Republic of the Philippines' bonds (ROPs). government securities.12.g. • Investment policy statement The TE shall have in place a method by which suitability of investment is determined based on the results of the CSA and formulated via an Investment Policy Statement (IPS).Page 3 . The TE is able to organize the portfolio in a manner that will provide for anticipated liquidity requirement through redemption of principal contribution or earnings. Q-48 08. vi. The TE shall make a recommendation only after having reasonably determined that the proposed investment is suitable to the client’s and/or beneficiary’s financial situation. Moderate. recommend the investment product/portfolio/strategy. ii. For complex transactions where the level of risk involved is greater. experience and financial situation of the client or potential client to assess the level of investment sophistication.g. This may include the careful assessment whether the specific type of financial instrument/service/ portfolio/strategy is in line with the client’s disclosed financial capacity. the IPS is equivalent to the investment objective of the fund specifically stated in the Declaration of Trust. upon notice/advise to the TE. subject to the conformity of the client. the TE shall not make new/additional investments in complex investment products. and vi. Updated CSA and IPS shall be acknowledged by the client. • He would like to avail of the investment product/portfolio/strategy other than that which is consistent with the results of the CSA. the TE shall ensure that the CSA and the IPS are updated at least annually. Investment performance review – indicating proposed market benchmarks. Otherwise.g. iii. The TE shall ensure that periodic written notices given to clients reminding them of such updates are received/ acknowledged by clients or their authorized representatives. v. • He requests/intends to be reclassified. of the risks that he is exposed to. The TE shall have taken all reasonable steps to ensure that the client meets all relevant requirements as provided for in the TE’s written policies. if any and the desired frequency of the performance review/reporting. The TE shall update the CSA and the IPS at least every three (3) years except in the following instances. • Whenever updates are necessitated by the client. . • Whenever managed trust. Such re-classification may be allowed subject to the observance of the following: i.classification Generally. Appendix Q-48 .APP.12. For UITF. A client who exercises the option to be re-classified outside the CSA process thereby waives some of the protection afforded by these guidelines. The latest CSA and IPS will continue to be applied for any subsequent principal contributions to the account. ii. on account of a change in personal/financial circumstances or preferences. either generally or in respect to a particular investment/service/ transaction/ product. however.31 iii. the TE shall adjust/modify its investment strategy/ portfolio and recommendation. The TE shall issue a clear written warning to the client of the protections he may lose and conversely. and • He fully understands and is willing to take the risks incidental to the investment product/portfolio/strategy to be availed of. iii. iv.Page 4 ii. other fiduciary. • Frequency of CSA and IPS i. iv. until these are amended or updated by the client. provide a process for allowing clients to invest in investment products/ portfolio/strategy with a higher risk than those corresponding to the CSA profile results. the TE shall recommend the investment product/portfolio/strategy suitable to the client based on the results of the CSA. The client shall state in writing to the TE that • He does not agree with or accept the recommendation of the TE on the investment product/portfolio/strategy appropriate to the client’s profile based on the results of the CSA. The frequency of review shall be included as a provision in the written agreement.. Q-48 08. • Option of client to re. prohibited investments) and client’s consent for taking losses. Investment limits – identifies any limitation which the client may have for the portfolio such as investment restrictions (e. and investment management accounts express intention to invest in complex investment products such as financial derivatives. The CSA shall be performed and the IPS shall be formulated and executed prior to the opening of the account. The TE may. 4411Q. b. ii.Page 5 . the degree of discretion granted to the trustee or agent must be clearly defined and stated in the agreement. in particular his financial commitments towards the TE. An appropriate disclosure bringing to the client’s attention the risks involved in the transactions envisaged. The Agreement must conform to the requirements provided under Subsec. fiduciary or investment management agreement. Policies and procedures shall provide that trust or investment management agreements are signed by the trust officer or . the Agreement shall contain the following provisions: i. All charges relating to the services or instruments envisaged and how the charges are calculated. The engagement documents shall clearly specify the extent of fiduciary assignments/ responsibilities of the TE and articulate the nature and limits of each party’s status as trustor/principal or trustee/agent. A description of the services to be provided. iii. The Risk Disclosure Statement shall contain. Q-48 08.31 b. The trust. The type(s) of instruments and transactions envisaged. (1) Discretionary. branch managers/officers duly authorized by the board of directors. Such authority of the TE which obtained a composite Trust Rating of “4” in the latest BSP examination will not be subject to the investment limitations provided under Subsecs. fiduciary or investment management relationship shall be formally established through a written legal document such as the trust or investment management agreement. in particular.2 and 4409Q. or in the case of UITFs. the following provisions: Appendix Q-48 . 4409Q. For engagements involving management of assets or properties. The documentation process must also consider the following: a. its reporting and notice obligations to the clients. For complex investment products such as financial derivatives instruments or those that use synthetic investment vehicles. respectively. The Agreement shall be in plain language understandable by the client and/ or personnel of the TE responsible for explaining the contents of the agreement to the client. which forms part of or attached to the trust. 4409Q. Key features of investment services and financial instruments envisaged. the TE shall provide a clearly stated and easily understood Risk Disclosure Statement to its clients. ii.12. The TE has authority or discretion to invest the funds/property of the client in accordance with the parameters set forth by the client.APP. (3) Documentation. In order to give a fair and adequate description of the investment service or financial instrument. The obligations of the TE with respect to the transactions envisaged. Identification of degree of discretion granted by client to the TE. This process involves the determination of the extent of discretion granted to the TE to manage the client’s portfolio. The obligations of the client with respect to the transactions envisaged. 4411Q.1 for trust and other fiduciary accounts and Subsec. Investment activity of the TE is directed by the client or limited only to specific securities or properties and expressly stipulated in the agreement or upon written instruction of the client. iii. c.4 and 4411Q.3 for trust and other fiduciary accounts and Subsecs. and iv. among other things. d.5 for investment management accounts. and (2) Non-discretionary. subordinate officer of the trust department. the TE shall disclose to the client and require client’s prior written conformity to the following: i. and iv. In addition. according to the nature of such instruments and services.1 for investment management accounts. if the market is not good. Account administration It is the fundamental duty of a fiduciary to administer an account solely in the interest of clients. B.e. A comprehensive accounts review. The periodic review process also involves disclosure of information on the investment portfolio and the relevant investing activities. (2) credit process and (3) investment process. The policy shall likewise indicate the scope of the account review depending upon the nature and types of trust. Cautionary statement on the general risks of investing or associated with financial instruments.Page 6 management accounts (including collective investment schemes such as UITFs) shall be conducted. The periodic review of managed accounts shall be aligned with the provisions on the review and updating of the CSA and IPS. (1) Periodic review of existing accounts The board of directors and Trust Committee shall formulate and implement a policy to ensure that a comprehensive review of trust. which shall entail an administrative as well as investments review. not consistent with the requirements of the client) and to take proper action through prudent investment practices to change the structure or composition of the assets. i. (i. Such statement must be given due prominence. The duty of loyalty is a paramount importance and underlies the entire administration of trust. Relevant changes in the . Whether the administrative and investment review are performed separately or simultaneously. and iii.. Account administration basically involves three processes. a description and explanation of such risks shall be clearly stated. including asset allocation guidelines. individually and collectively. be obligated to provide extra funding in case it/he is required to pay more later. fiduciary and investment management agreements and documents have been reviewed and found to be legally in order. while an investment review is used to analyze the investment performance of an account and reaffirm or modify the pertinent investment policy statement. the former assumes full risk on the investment and related activities. Additional risk disclosures may be provided as appropriate. fiduciary and investment Appendix Q-48 . an investor may not be able to get back his principal or original investment. and counterparties. for the account. namely.31 i. The board of directors may delegate the conduct of account review to the Trust Officer or Trust Department Committee created for that purpose. fiduciary and investment management accounts managed. said instruments can be subject to sudden and sharp falls in value such that the client may lose its/his entire investment. and not to be concealed or masked in any way by the wording. A successful administration will meet the needs of both clients and beneficiaries in a safe and productive manner.e. (1) periodic review of existing accounts. Advisory statement that for complex investment products. The TE must ensure that the trust. ii. the reviewing authority shall be able to determine if certain portfolio/assets are no longer appropriate for the account.. Q-48 08. shall be performed on a periodic basis to ascertain that the account is being managed in accordance with the instrument creating the trust and other fiduciary relationship. whenever applicable.12. and. Regardless of the degree of discretion granted by the client to the TE. other fiduciary and investment management accounts. If the investment outlet is exposed to any major or specific risks.APP. design or format of the information provided. The administrative review of an account is taken to determine whether the portfolio/ assets are appropriate. The process ensures credit worthiness of investment undertakings including dealings and relationship with counterparties. Clear credit process flow. and Appendix Q-48 . and its subsidiaries and affiliates. iii. ii. including the use of internal and external credit rating and approval process relative to the delivery of its investment function. iv. The TE shall also establish a system that enables a trust account representative or officer to periodically contact clients and/or beneficiaries to determine whether their financial objectives and circumstances have changed. ii. Clear delineation of duties and responsibilities of each of the departments. The credit process shall show the following at the minimum: i. including confidential and material data. The credit process must at least cover the following: a. from initiation of the lending activities envisioned by the TE up to the execution of actual investment. and iv. Manner by which the TE handles the information. subsidiaries or affiliates of the TE.1 and as necessary. Trust entities must clearly define its credit policies and processes. subsidiaries or affiliates of the TE. duties and responsibilities of each of the department. Credit criteria and rating used. especially for accounts of public interest like retirement/pension fund accounts. including confidential and material data. The types of reports and statements and the frequency of their submission must be clearly specified in the TE’s written policies and procedures. including the nonbank proper.31 TE’s organization or investment policies that may affect the client’s decision to continue the services of the TE shall be disclosed to the client. Credit policies. It may use or avail itself of the accreditation process of its nonbank proper. Usage. where such groups or entities share the credit process. The TE shall keep its clients informed of the investment and related activities by rendering periodic reports and financial statements prescribed under Subsec. The TE can share credit information with the non-bank proper subject to proper delineation and documentation. due diligence review of the investment portfolio by the TE shall include providing investors with appropriate information needed to make an informed investment decision and avoid possible conflict of interest and self-dealing situations. which is shared between and among the departments. provided there is proper delineation of functions. Clear accreditation process flow from the initiation of credit activities up to the actual usage of lines. subsidiaries and affiliates of the TE. 4425Q. for their investment trading functions.12. The counterparty accreditation process shall show the following at the minimum: i.Page 7 .APP. subsidiaries and affiliates of the TE. (2) Credit process Each trust entity shall define its credit process in relation to the discharge of the TE’s investment function. b. Counterparty accreditation process The TE must clearly define the policies and the processes it will undertake to accredit counterparties. In the case of non-discretionary public interest accounts such as employee benefit/retirement or pension funds. Credit criteria and rating used. Q-48 08. The TE should be able to show (in addition to the specific written directive from the client) what it has done in the exercise of due diligence and prudence on its part to protect the interest of the client and/or beneficiaries. where there is sharing of credit lines between and among these concerned groups/ entities. which are shared between and among the departments. It also serves to institutionalize the independence of the credit process of the TE. iii. Manner by which the TE handles the information. Page 8 • Asset allocation. standards and practices. The investment process covers a broad range of activities. • Benchmark selection/creation Selects or crafts the benchmarks to reflect the desired return of the portfolio and to measure the performance of the portfolio manager. Aims to understand the level of maturity of the client relevant to the creation of an appropriate portfolio. include the following: a.APP. undertaken by the TE in the execution of its fund/asset management function. Portfolio construction for custommade portfolios. preservation of capital. Includes the process of researching and selecting recommended portfolio and setting objectives or strategies for diversification by types and classes of securities into general and specialized portfolios.31 v. The asset allocation may be based on percentage to total funds managed by the TE or stated in absolute amount whichever is preferred by the client. The process provides for the review of investment performance using risk parameters and comparison to appropriate benchmarks. must be in place. • Limits. • Security selection. These limitations have to be specific as to the nature of the portfolio. as well as a description of the overall process for addition to and deletion from the lists. (3) Investment process This process defines the investment policies and procedures. a reasonable level of risk as well as undivided loyalty to each client and adherence to established structure for the TE’s investment undertakings. The TE shall be required to measure performance based on benchmarks to gauge or measure the performance of the account.12. Appendix Q-48 . b. i. thus. Investment policies and processes. Overall investment philosophy. diversification. including decision-making processes. Defines the policies and the processes undertaken to create the portfolio to ensure the proper understanding of the client’s preferences. and companies engaged in vices. This involves the selection of issuers for each of the identified asset classes. Outlines the process and criteria for selecting and evaluating different asset classes identified to be appropriate for the client’s profile and investment objective. along with a discussion on the practices and standards to be implemented to achieve the desired result. Identifies any limitations on portfolio management which the client may impose on the TE. investment in competitor companies. at a minimum. It shall also identify the documentation required for all investment decisions. The primary objective of such process is to create a structure that will assure TEs observe prudence in investment activities at all levels. such as but not limited to. there shall be an outline of the criteria for the selection and monitoring of such investments. core holdings. • Risk disclosure statement. Profiling of client. Q-48 08. A clear and appropriately worded statement/s to . If the TE uses approved lists of investments. ii. It includes the allocation of desired tenors in conjunction with the client or portfolio profile based on the CSA or IPS. including investment advisory. Clear delineation of duties and responsibilities of each of the departments. where such groups or entities share the accreditation credit process. A general statement of principles that guides the portfolio manager in the management of investments outlined in the board-approved policy. The TE must have clear definition of its benchmarking policy. the investment policies shall clearly outline the parameters that. subsidiaries and affiliates of the TE. Policies and procedures on the selection of investment outlets. Execution capability and ability to handle specialized transactions. The policy shall state the duties and responsibilities of the TE and each department including that of the nonbank proper and subsidiaries and Appendix Q-48 . The TE shall use reasonable diligence to ensure that investment trades are executed in a timely manner and on the best available terms that are favorable to the client under prevailing market conditions as can be reasonably obtained elsewhere with an acceptable counterparty. The TE shall have a policy on the general diversification requirements for asset administration. A TE shall have access to timely and competent economic analyses and forecasts for the capital markets and other products in which its clients will be investing.Page 9 . and investment position taking. and vi. the policies must include the following standards: i. Q-48 08. no purchase/sale must be made for discretionary accounts without considering at least two (2) competitive quotes from other sources. including operating results and adequacy of capital and liquidity. commodity prices. This unit provides necessary forecasts of capital market expectations. currency relationships. Defines the institution’s policies in ensuring timely. Selection and use of brokers/ dealers. v. vi. and self-regulated organizations authorized by the SEC. The TE shall document best practices policies and processes to institutionalize proper safeguards for the protection of its clients and itself. The quality of execution is an important determinant in broker selection. v. ii. and expected returns of asset classes and individual investment instruments. The TE with large portfolio may opt to evaluate broker performance using a formalized point scoring system. Commission rates and other compensation. which help the TE establish appropriate investment policies and strategies.31 disclose different risks to clients of the various investment undertakings of the investment manager done in behalf of the client. Best practices. iv. A list of approved brokers shall be made available by the TE. Diversification of discretionary investments. iii. c. Chinese wall. iii. regulators.12.APP. iv. For related counterparties. Available information about the broker from other broker customers. Financial strength. fair and equitable allocation of investments across investing portfolios. reviewed periodically and updated at least annually. At a minimum. ii. select appropriate investments. Value of services provided. a TE must consider the following minimum standards and criteria: i. as well as the process implemented to monitor and control deviations from policy guidelines. TEs engaged in more complex transactions may consider providing an economic and securities research unit that continually monitors global trends and capital markets. Internal policies on trade allocation. including research. shareholder. interest rate movements. d. Best execution. The policy on best execution must document processes to warrant such execution is readily and operationally verifiable. A clear policy on Chinese wall aims to protect the institution from conflict of interest arising from varying functions carried by the TE in relation to credit (debt). and manage risks effectively. In selecting brokers/dealers. Past record of good and timely delivery and payment on trades. The TE shall have a process that will confirm trust personnel with investment functions know and follow the BOD-approved investment policies and processes. and the formula used to derive the NAV of investment portfolios. and care and diligence.5. Confidentiality and materiality of information. v. Fair dealing. 4409Q. honest and professional practices in accordance with the best interest of the client and counterparties at all times and for the integrity of the market. In-House or related party transactions handling. Where a client opts not to accept the recommendation of the TE and chooses to purchase another investment product which is not recommended. custodians. Diligence and reasonable basis. Q-48 08. The TE must also take care not to discriminate against any client but treat all clients in a fair and impartial manner. Valuation. The TE shall document the institution’s valuation process to show the sources of prices. The TE must ensure that the valuation processes of service providers. provided it shall document the decision of the client and highlight to him/ her that it is his/her responsibility to ensure the suitability of the product selected. The TE shall document dealing practices to ensure fair. when acting for or with clients. iv. The TE must keep information about past. When providing advice to a client. the TE may proceed with the client’s request/ instruction. The duty of due diligence is intertwined with the duty to maintain independence and objectivity in providing investment recommendations or Appendix Q-48 . vii. It must ensure that any representations or other communications made and information provided to the client are accurate and not misleading. iii. vi. current and prospective clients confidential. • The TE shall ensure that transactions executed on behalf of clients are promptly and fairly allocated to the accounts of the clients on whose behalf the transactions were executed. and in the best interests of its clients and the integrity of the market. Personnel investment policies These policies aim to ensure honest and fair discharge of investment trading functions of all qualified personnel. compliant with written policies and operating procedures. • The TE shall take all reasonable steps to execute promptly client orders in accordance with the instruction of clients. Qualified personnel are those that may have access to information on clients and investment position-taking of clients. It must ensure safekeeping of confidential and material information and prevent the abuse of such information to the detriment of the institution or its clients. It must conform to the requirements of Subsecs. • The TE. . shall always execute client orders on the best available terms.31 affiliates should transactions involve the concerned departments and entities.Page 10 taking investment actions. the TE shall act diligently and make certain that its advice and recommendations to clients are based on thorough analysis and take into account available alternatives. unless disclosure is authorized in writing by the client or required by law and the information involve illegal activities perpetrated by the client. Valuation shall be understood. investment manager or portfolios.3 and 4411Q. The TE shall define the policies in handling related-interest transaction to ensure that the best interest of clients prevails at all times and all dealings are above board. and used consistently within the TE. The use of such information may be abused and detrimental to the clients. The policy shall state the duties and responsibilities of each qualified personnel in relation to trading and portfolio management activities including allowed and not allowed transactions as well as sanctions in case of violations.APP. In conducting its investment services. and other subcontractors are compatible with those of the TE and in compliance with relevant statutory or regulatory valuation standards.12. the TE shall act with skill. viii. either market or historical value. Such transactions must be fully disclosed and authorized in writing by clients. needs and circumstances of the beneficiaries. the timing of distribution. Q-48 08. the possible modes of distribution. which could include transactions such as an investment in related interests of the TE or purchase of securities from or through an affiliate. these issues shall be disclosed to the client for proper disposition. return and delivery of assets/ portfolio to the client. such as the liquidation of certain assets or the partition or division of assets.31 Risk officers shall document the accuracy and reliability of all valuation processes and data sources and ensure that valuations are completed as required by internal policies and procedures and regulatory reporting standards. 618 dated 20 August 2008) Appendix Q-48 . Generally. preparation and filing of required reports.Page 11 . Should the TE anticipate possible issues or problems with respect to the termination of the account. These may arise when the TE exercises any discretion where mutually opposing interests are involved. The most serious conflict of interest is self-dealing. fiduciary and investment management accounts shall likewise include the approval process to be observed for the termination of these accounts as well as the reporting requirements for accounts terminated and closed. the successor trustee and/or beneficiaries of the remaining assets held under trusteeship/agency arrangement. fees to be paid. The trust or investment management agreement shall provide for the terms and manner of liquidation. the documentation required to effect the transfer of assets. the provision of terminal reports. which policy shall take into consideration the general processes to be observed in the return or delivery of different types of assets. Account termination Accounts may be terminated for a variety of reasons. The TE must ensure that risk control processes are observed when terminating accounts just as when accepting them. Conflicts of interests.12. (Circular No. Because of the complexity and sensitivity of the issue. The policy on the termination of trust. e. and whenever applicable. 3. a TE must develop policies and procedures to identify and deal with conflicts of interest situations. taxes to be imposed. the TE’s responsibilities include distribution to the client.APP. including the occurrence of a specified event or upon written notice of either the client or the TE. The TE must have a general policy with respect to the termination of trust accounts. Page 1 b .2 and 4601Q.31 Appendix Q-49 . 3). Closed PCHC Manila Regional No clearing. U n d e r unfavorable conditions such as bad weather. coordination with PCHC will issue Head Office an advisory to its members that it will continue accepting and processing checks APP.6) Bureau of the Treasury Bangko Sentral ng Pilipinas Time of receipt of Public Holiday Announcement by the BSP 1. no To be decided in s e t t l e m e n t . no To be decided in s e t t l e m e n t .Manual of Regulations for Non-Bank Financial Institutions GUIDELINES FOR DAYS DECLARED AS PUBLIC SECTOR HOLIDAYS (Appendix to 4246Q. (e.g. Under good w e a t h e r condition Closed Closed Closed Closed Open Closed Open Closed Open Closed Reserve NonReserve Open Closed Open Closed Normal To be decided in coordination with Head Office No clearing. On a Saturday or Sunday to take effect the following Monday or on a non-working holiday to take effect the next business day a. Mkt. On an o r d i n a r y business day prior to the date of effectivity Treasury Department Overnight RP/RRP Trading Settlement Term RP& RRP/GS/ SDA/RDA Trading Settlement Closed Closed No change in trading hours No No change change in in trading settlement hours time Closed Closed PDS Closed PhilPASS Closed Cash Dept Withdrawal Closed Reserve Position NonReserve Auction Closed Sec. Typhoon signal no. coordination with PCHC will issue Head Office an advisory to its members that it will continue accepting and processing checks 2. Q-49 08.12. natural calamities or c i v i l disturbances No change in settlement time . m. 4:45p. In case suspension work extended Day 2 a.Page 2 Time of receipt of Public Holiday Announcement by the BSP . Mkt.12.m. on the date of effectivity Bureau of Treasury Bangko Sentral ng Pilipinas PDS PhilPASS Cash Dept Withdrawal Reserve Position Auction Sec. to trading 10:00 9:45 am hours a.m. PCHC coordination with will issue an advisory Head Office to its members that it will continue accepting and processing checks Closed Closed Closed Closed Closed NonReserve Closed Closed No change in trading hours No change in settlement time Open Open Open Reserve Open Open Normal To be decided in coordination with Head Office Resumed 9:01 a. to to 5:30p.m.31 Appendix Q-49 . for same day transaction No change in settlement time Open Open Open Reserve Open Open Normal To be decided in coordination with Head Office Closed Closed Closed Closed NonReserve Closed Closed Closed Suspended to be resumed the following day at 9:01a.m.m. Before 9:00am of Day 2 Treasury Department Term RP& RRP/GS/ SDA/RDA Trading Settlement Trading Settlement Overnight RP/RRP Closed Day 1 4. PCHC Manila Regional No clearing.m.m. Before 9:00 a.m.m. to 9:45 a. Q-49 08. 5:45p. 4:45p. Closed Day 1 transactions will be moved to Day 3 (for value Day 1) Closed No clearing. no To be decided in settlement. After 9:00 a.m. No from 9:01 change in to a. of of is to Day 2 closed. no To be decided in settlement PCHC coordination with will issue an Head Office advisory to its members that it will continue accepting and processing checks APP. on the date of effectivity Day 2 Manual of Regulations for Non-Bank Financial Institutions 5.3. (for value Day 1) then. m.m.m. for same day transaction b. (for value Day 1) then.m. of Day 2 PhilPASS Cash Dept Withdrawal Bureau of Treasury PCHC Auction Sec. 9:01 a.m. to 5:30p. 4:45p. to 10:00 a. to 10:00 am PDS Reserve Position . to 9: 45 a.m. to 5:45p.m. Mkt. to 9:45 am (for value Day 1) then.m. to 5:45p.m.m. Day 2 transactions suspended to be resumed the following day from 9:01a.12. Q-49 08. to 9:45 a.m.m.m.Page 3 Day 2 Resumed from 9:01 a. 4:45p. After 9:00 a. APP.Manual of Regulations for Non-Bank Financial Institutions Time of receipt of Public Holiday Announcement by the BSP Bangko Sentral ng Pilipinas Treasury Department Term RP& RRP/GS/ Overnight RP/RRP SDA/RDA Trading Settlement Trading Settlement Day 3 Resumed from 9:01 a.31 Appendix Q-49 .m. Manila Regional No change in trading hours No change in settlement time Open Open Open Reserve Open Open Normal To be decided in coordination with Head Office No change in trading hours No change in settlement time Open Open Open Reserve Open Open Normal To be decided in coordination with Head Office 4:45p.m. 9:01 a. m.m.m. for p. hours same day transaction (M-2008-025 dated 13 August 2008) Cash Dept Withdrawal PCHC Reserve Position No change in settlement time APP.m. etc.m. Mkt.12. to 5:30 to 5:45 change in trading p. 4:45p.m. 4:45 p. Manila Regional PDS PhilPASS Open Open Open Reserve Open Open Normal To be decided in coordination with Head Office Open Open Open Reserve Open Open Normal To be decided in coordination with Head Office 4:45p. No No change in change in trading settlement hours time Auction Sec. to 5:30p.m. to 9:45 am (for value Day 2) then.Page 4 Time of receipt of Public Holiday Announcement by the BSP .) Bureau of Treasury Bangko Sentral ng Pilipinas Treasury Department Term RP& RRP/GS/ SDA/RDA Trading Settlement Trading Settlement Overnight RP/RRP Resumed from 9:01 a. Quezon City Day. Q-49 08. In case the suspension of work does not apply to all government offices (Manila Day.31 Appendix Q-49 . to 5:45p. for same day transaction 9:01 a.m. to 10:00 a.Day 3 Manual of Regulations for Non-Bank Financial Institutions 6.m. No 4:45 p.m.m. 1 Revaluation surplus 4107S .4110S (Reserved) C.2 Organizational requirements SECTIONS 4102S .MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS S REGULATIONS (Regulations Governing Non-Stock Savings and Loan Associations) TABLE OF CONTENTS PART ONE . (RESERVED) SECTIONS 4111S .ORGANIZATION.1 Membership 4101S. NET WORTH-TO-RISK ASSETS RATIO SECTION 4116S Capital-to-Risk Assets SECTION 4117S Withdrawable Share Reserve SECTION 4118S Surplus Reserve for Ledger Discrepancies SECTION 4119S Reserve for Office Premises. CAPITALIZATION SECTION SECTIONS 4106S Capital 4106S. Fixtures and Equipment SECTION 4120S (Reserved) i .4105S (Reserved) B.4115S (Reserved) D. MANAGEMENT AND ADMINISTRATION A. SCOPE OF AUTHORITY SECTION 4101S Scope of Authority of Non-Stock Savings and Loan Associations 4101S. Furniture. 3 Disqualification procedures 4143S.2 4141S.5 (Reserved) 4143S.2 Recording of net income for distribution SECTIONS 4127S . OFFICERS.5 Qualifications.6 Watchlisting SECTION 4144S Compensation of Trustees.1 Persons disqualified to become trustees 4143S.1 Reporting and verification 4126S. Trustees 4141S.1 Definition of officers 4142S.1 Compensation increases 4144S. TRUSTEES.E.3 4141S.4140S (Reserved) G.2 Liability for loans contrary to law SECTION 4145S Bonding of Officers and Employees SECTION 4146S Agents and Representatives ii .2 Persons disqualified to become officers 4143S. NET INCOME DISTRIBUTION SECTION 4126S Limitations on Distribution of Net Income 4126S.2 Qualifications of officers SECTION 4143S Disqualifications of Trustees and Officers 4143S.4 4141S. Responsibilities and Duties of Definition of trustees Qualifications of trustees Powers and authority of the board of trustees General responsibility of the board of trustees Duties and responsibilities of the board of trustees SECTION 4142S Definition and Qualifications of Officers 4142S. (RESERVED) SECTIONS 4121S . EMPLOYEES AND AGENTS SECTION 4141S Definition.4125S (Reserved) F.1 4141S.4 Effect of non-possession of qualifications or possession of disqualifications 4143S. Officers and Employees 4144S. SECTION 4147S (Reserved) SECTION 4148S Full-Time Manager for NSSLAs SECTIONS 4149S .4 Code of Ethics and Internal Auditing Standards iii . REPORTS SECTION SECTION 4161S 4162S Records 4161S.1 4162S.2 Conditions precluding acceptance/processing of application 4151S.1 4161S.1 Status 4164S.4 Permit to operate SECTIONS 4152S .4155S (Reserved) I. BUSINESS DAYS AND HOURS SECTION 4156S Business Days and Hours SECTIONS 4157S .3 Uniform system of accounts Philippine Financial Reporting Standards/ Philippine Accounting Standards Categories and signatories of reports Manner of filing Sanctions and procedures for filing and payment of fines SECTION 4163S (Reserved) SECTION 4164S Internal Audit Function 4164S.2 4162S.1 Application 4151S.3 Internal control system 4151S.3 Qualification standards of the internal auditor 4164S.4150S (Reserved) H.2 Reports 4162S. BRANCHES AND OTHER OFFICES SECTION 4151S Establishment of Branches/Extension Offices 4151S.2 Scope 4164S.4160S (Reserved) J. Sanction.4189S (Reserved) SECTION 4190S Duties and Responsibilities of NSSLAs and Their Directors/ Officers in All Cases of Outsourcing of NSSLA Functions SECTIONS 4191S (Reserved) SECTION 4192S Prompt Corrective Action Framework SECTION 4193S Supervision by Risks SECTION 4194S Market Risk Management SECTION 4195S Liquidity Risk Management SECTION 4196S .4179S (Reserved) SECTION 4180S Selection.2 Posting of audited financial statements SECTIONS 4173S .SECTIONS 4165S .4170S (Reserved) K. Effectivity L. MISCELLANEOUS PROVISIONS SECTION 4181S Publication Requirements SECTION 4182S Business Name SECTION 4183S Prohibitions SECTIONS 4184S .1 Audited financial statements of NSSLAs 4172S. INTERNAL CONTROL SECTION 4171S External Auditor SECTION 4172S Financial Audit 4172S. Appointment and Reporting Requirements for External Auditors.4198S (Reserved) SECTION 4199S General Provision on Sanctions iv . DEPOSIT AND BORROWING OPERATIONS A.4215S (Reserved) C.4240S (Reserved) G.4220S (Reserved) D.PART TWO . . SAVINGS DEPOSITS SECTION 4206S Definition SECTION 4207S Minimum Deposit SECTION 4208S Withdrawals SECTION 4209S Dormant Savings Deposits SECTIONS 4210S . (RESERVED) SECTIONS 4231S . INTEREST ON DEPOSITS SECTION 4241S Interest on Savings Deposits v . DEMAND DEPOSITS SECTION 4201S Checking Accounts SECTIONS 4202S .4205S (Reserved) B.4230S (Reserved) E.F. TIME DEPOSITS SECTION 4221S (Reserved) SECTION 4222S Minimum Term and Size of Time Deposits SECTION 4223S Withdrawals of Time Deposits SECTIONS 4224S . (RESERVED) SECTIONS 4216S . 2 Identification of member-depositors 4261S.4298S (Reserved) SECTION 4299S General Provision on Sanctions PART THREE .4280S (Reserved) J. (RESERVED) SECTIONS 4251S . SUNDRY PROVISIONS ON DEPOSIT OPERATIONS SECTION 4261S Opening and Operation of Deposit Accounts 4261S.4285S (Reserved) K.6 Deposits in checks and other cash items SECTIONS 4262S . LOANS IN GENERAL SECTION 4301S Authority. OTHER BORROWINGS SECTION 4286S Borrowings SECTIONS 4287S .LOANS AND INVESTMENTS A. Maturity of Loans SECTION 4302S Basic Requirements in Granting Loans SECTION 4303S Loan Proceeds vi .SECTION 4242S Interest on Time Deposits 4242S.1 Time of payment 4242S.4 Signature card 4261S.5 Passbook and certificate of time deposit 4261S. Loan Limits.4250S (Reserved) H.3 Number of deposit accounts 4261S. (RESERVED) SECTIONS 4281S .2 Treatment of matured time deposits SECTIONS 4243S .1 Who may open deposit accounts 4261S.4260S (Reserved) I. 4 Signatories (Deleted by Circular No.2 Information to be disclosed 4307S.SECTION 4304S Loan Repayment SECTION 4305S Interest and Other Charges 4305S.2 – 4312S.4305S.2 Extension/renewal of loans 4306S.4 Updating of information provided to credit information bureaus SECTION 4307S "Truth in Lending Act" Disclosure Requirements 4307S. 4313S – 4320S (Reserved) B.1 General Guidelines (Deleted by Circular No. (RESERVED) SECTIONS 4336S .5 Penal provisions SECTIONS 4308S .4335S (Reserved) C.2 (Reserved) 4305S.1 Definition of terms 4307S.4311S (Reserved) SECTION 4312S Grant of Loans and Other Credit Accommodations 4312S.4 Escalation clause.5 Interest accrual on past due loans SECTION 4306S Past Due Accounts 4306S.1 Accounts considered past due 4306S.1 . – D. when allowable 4305S. SECURED LOANS SECTION 4321S Kinds of Security SECTIONS 4322S .3 Write-off of loans as bad debts 4306S.4 Posters 4307S.3 (Reserved) 4312S.3 Inspection of contracts covering credit transactions 4307S. 622 dated 16 September 2008) 412S.4355S (Reserved) vii . 622 dated 16 September 2008) Secs.3 Interest in the absence of contract 4305S. OTHER OPERATIONS SECTION 4391S Fund Investments 4391S. OFFICERS.E.4398S (Reserved) SECTION 4399S PART FOUR SECTIONS General Provision on Sanctions (RESERVED) 4401S .4395S (Reserved) K. LOANS/CREDIT ACCOMMODATIONS TO TRUSTEES.(RESERVED) SECTIONS 4501S .4 .4499S (Reserved) PART FIVE .4369S (Reserved) SECTION 4370S Sanctions F. STOCKHOLDERS AND THEIR RELATED INTERESTS SECTION 4356S General Policy SECTION 4357S Direct/Indirect Borrowings. (RESERVED) SECTIONS 4371S .10 (Reserved) SECTIONS 4392S .4599S (Reserved) viii .3 Investment in debt and marketable equity securities 4391S.4390S (Reserved) J.I.1 . Reports SECTIONS 4359S .4391S. MISCELLANEOUS PROVISIONS SECTIONS 4396S . .4391S. Ceilings SECTION 4358S Records.2 (Reserved) 4391S. SUNDRY PROVISIONS SECTION 4651S Notice of Dissolution SECTION 4652S Confidential Information SECTION 4653S Examination by the BSP SECTION 4654S Applicability of Other Rules SECTION 4655S Annual Fees on Non-Stock Savings and Loan Association SECTION 4656S Basic Law Governing Non-Stock Savings and Loan Association SECTION 4657S NSSLA Premises and Other Fixed Assets 4657S.9 Batas Pambansa Blg.MISCELLANEOUS A.1 Accounting for NSSLAs premises. Establishments and Public Utilities to Install Facilities and Other Devices ix . Other fixed assets 4657S.4657S. Institutions.2 (Reserved) 4657S.An Act to Enhance the Mobility of Disabled Persons by Requiring Certain Buildings.1 Guidelines on the imposition of monetary penalties SECTIONS 4602S .3 Reclassification of real and other properties acquired as NSSLA premises 4657S. 344 .8 (Reserved) 4657S.4650S (Reserved) Revocation/Suspension of NSSLA License B.4 .4630S (Reserved) SECTION 4631S SECTIONS 4632S .PART SIX . OTHER OPERATIONS SECTION 4601S Fines and Other Charges 4601S. 9 Sanctions and penalties Valid Identification (ID) Cards for Financial Transactions General Provision on Sanctions x .8 (Reserved) 4691S.SECTIONS 4658S .1 .4694S (Reserved) SECTION 4695S SECTIONS 4696S .4659S (Reserved) SECTION 4660S SECTIONS 4661S .4691S.4698S (Reserved) SECTION 4699S Disclosure of Remittance Charges and Other Relevant Information Anti-Money Laundering Regulations 4691S.4690S (Reserved) SECTION 4691S SECTIONS 4692S . A.Format of Resolution for Signatories of Category A-1 Reports Annex S-3-b . 9160.12.31 LIST OF APPENDICES No.Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions S-7 Revised Implementing Rules and Regulations R. No. No.A. as amended by R. 3765) S-6 Anti-Money Laundering Regulations Annex S-6-a . Appointment and the Reporting Requirement for External Auditors of NSSLAs Manual of Regulations for Non-Bank Financial Institutions S Regulations .List of Appendices 08.Format of Resolution for Signatories of Categories A-3 and B Reports S-4 Format-Disclosure Statement of Loan/Credit Transaction S-5 Abstract of "Truth in Lending Act" (Republic Act No. SUBJECT MATTER S-1 Safeguards in Bonding of NSSLA Accountable Officers and Employees S-2 List of Reports Required from Non-Stock Savings and Loan Associations Annex S-2-a .Reporting Guidelines on Crimes/Losses S-3 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex S-3-a .Certification of Compliance with Anti-Money Laundering Regulations Annex S-6-b .Format of Resolution for Signatories of Category A-2 Reports Annex S-3-c . 9194 S-8 Guidelines to Govern the Selection. 1 Membership a.§§ 4101S . or any amendment thereto. officers. No. shall not be registered with the SEC unless accompanied by a certificate of approval from the Monetary Board. The application shall include: (1) The proposed articles of incorporation and by-laws together with the names and addresses of the incorporators. Application for approval. 8367 and which limit and/or allow membership 1 coverage broader or narrower than the foregoing definition. The Monetary Board may.31 PART ONE ORGANIZATION. NSSLAs shall issue a certificate of membership to every qualified member and shall maintain a registry of their members. non-profit corporation engaged in the business of accumulating the savings of its members and using such accumulations for loans to members to service the needs of households by providing long-term financing for home building and development and for personal finance. or department. (2) Government employees belonging to the same office.4101S. An NSSLA shall confine its membership to a well-defined group of persons. NSSLAs whose articles of incorporation and by-laws were approved and registered prior to the effectivity of R. experience. § 4101S. and (3) Immediate members of the families up to the second degree of consanguinity or affinity of those falling under Items “(1)” and “(2)” above. Articles of Incorporation. shall be submitted to the Monetary Board through the appropriate department of the SES together with a covering application for the approval thereof. SCOPE OF AUTHORITY Section 4101S Scope of Authority of Non-Stock Savings and Loan Associations An NSSLA shall include any non-stock. See SEC Circular No. A well-defined group shall consist of any of the following: (1) Employees. including member-retirees. Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . branch.12. An NSSLA may also engage in a death benefit program meant exclusively for the benefit of its members. shall be allowed to continue as such. as circumstances warrant. signed by a majority of the board of trustees and verified by one of them.2 Organizational requirements1 a. An NSSLA shall accept deposits from and grant loans to its members only and shall not transact business with the general public. including member-retirees. The articles of incorporation and by-laws of a proposed NSSLA. That for new members.2 08. § 4101S. by-laws The articles of incorporation and by-laws of a proposed NSSLA. 3 dated 16 February 2006. the fee shall be based on the amount of contributions computed in accordance with the revaluation of the assets of the NSSLA. A. and trustees of one company. with a statement of their character. both accomplished in the prescribed forms. require NSSLAs mentioned in the immediately preceding paragraph to amend their by-laws to comply with the concept of a well-defined group. trustees and officers. b. In no case shall the total amount of entrance fees exceed one percent (1%) of the amount to be contributed or otherwise paid-in by the particular member: Provided. MANAGEMENT AND ADMINISTRATION A. c.Page 1 . b. prior to transacting business. The Monetary Board may deny the application to organize an NSSLA on the basis of a finding that: (1) The NSSLA is being organized for any purpose other than to engage in the business of a legitimate NSSLA.31 and general fitness to engage in the non-stock savings and loan business. S Regulations Part I . the solvency of which is imperiled by losses or irregularities. (RESERVED) (As amended by CL-2008-078 dated 15 December 2008) Secs. may be allowed unless the by-laws of the NSSLA provide otherwise. CAPITALIZATION Sec. 8367. Certificate of authority to operate. revocation or suspension thereof. The combined capital accounts of each NSSLA shall not be less than an amount equal to ten percent (10%) of its risk assets which is defined as its total assets minus the following assets: Sec. In cases of both retiring and new members. (3) The proposed members are adequately served by one (1) or more existing NSSLAs. NSSLAs established after 14 August 2001.000. c. The minimum capital contribution requirement shall also apply to all pending applications to establish NSSLAs received prior to 14 August 2001. (As amended by Circular No. However.1 Revaluation surplus. d. 573 dated 22 June 2007) § 4106S. A.§§ 4101S.4105S (Reserved) D. 4116S Capital-to-Risk Assets. 4102S . Partial withdrawal from the amount paid by a member as capital contribution. (3) Filing fee of P1. the certificate of authority of any NSSLA. (2) An itemized statement of the estimated receipts and expenditures of the proposed NSSLA for the first year. fixtures. shall such partial withdrawal diminish the member’s capital contribution to less than P1. 4106S Capital.2 . during his membership.Page 2 Manual of Regulations for Non-Bank Financial Institutions .12. NSSLAs. Members who have contributed P1. shall have a minimum capital contribution of at least P1. 4107S . in no case.000. Members of NSSLAs may participate in the profits of the NSSLA on the basis of their respective capital contributions on the date distribution of net income is approved by its board of trustees.000 or more to the capital of an NSSLA may increase their capital contribution. After due notice and hearing. and subject to such rules and regulations as the Monetary Board may prescribe in the matter of such withdrawal of capital contribution.4116S 08. NET WORTH-TO-RISK ASSETS RATIO B. or of any NSSLA which willfully violates any provision of R. a revaluation surplus shall be added to their contributions by imputing their respective proportionate shares in the withdrawable share reserve and the reserve for furniture. Secs.4115S (Reserved) Secs. these rules or any pertinent law or regulation. for such period as it determines. No. (2) The NSSLA’s financial program is unsound.4110S (Reserved) C. 4111S . shall procure a certificate of authority to transact business from the Monetary Board. the Monetary Board may revoke or suspend.0 million. and furnishings. and (4) Such other information as the Monetary Board may require. and (4) There exist other reasons which the Monetary Board may consider as sufficient ground for such disapproval. Grounds for disapproval of application. f. and evidences of indebtedness of the BSP. Cash on hand. depreciated. b. 4117S Withdrawable Share Reserve NSSLAs shall create a withdrawable share reserve which shall consist of two percent (2%) of the total capital contributions of the members. depreciated. Real estate mortgage loans insured by the Home Guarantee Corporation to the extent of the amount of the insurance. and g. 4118S Surplus Reserve for Ledger Discrepancies. the following shall serve as guidelines: a. the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. The Monetary Board may. e. The reserve shall be adjusted first before the NSSLA shall declare and distribute to its members any portion of its net income at any time of the year. authorize to be deducted from total assets.Page 3 . but contingent accounts shall not be included among total assets. the reserve shall be correspondingly adjusted at the end of each month from undivided profits. Should there be an increase in the capital contribution. and if the amount of the deficiency justifies it. if any. restrict or prohibit the making of new investments of any sort by the NSSLA with the exception of the purchases of evidence of indebtedness included under Item “b” of this Section until the minimum required capital ratio has been restored. The Monetary Board shall prescribe the manner of determining the total assets of such NSSLA for the purpose of this Section. Whenever an NSSLA has a discrepancy between its general ledger accounts and their respective subsidiary ledgers. For a uniform interpretation of the provisions of this Section.§§ 4116S . d. 573 dated 22 June 2007) Sec. The withdrawable share reserve shall be set up from the undivided profits of the NSSLA and shall be funded in the form of cash deposited as a separate account and/or an investment allowed under this Section. a surplus reserve. in an Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . Furniture.4118S 07. (As amended by Circular No. b. 573 dated 22 June 2007) Sec. An amount corresponding to the withdrawable share reserve shall be set up by the NSSLA. from time to time. agencies or instrumentalities. the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. after considering the report of the appropriate department of the SES on the state of solvency of the NSSLA concerned. or assignment of. Office premises. and c. c. fixtures and equipment.12. Loans to the extent covered by hold-out on. the Monetary Board. after considering the aforesaid report of the appropriate department of the SES. the board of trustees of the NSSLA shall set up from the undivided profits of the NSSLA. deposits maintained in the lending NSSLA and held in the Philippines. Evidences of indebtedness of the Republic of the Philippines and of the BSP and any other evidences of indebtedness/ obligations. if any. shall limit or prohibit the distribution of net income and shall require that part or all of net income be used to increase the capital accounts of the NSSLA until the minimum requirement has been met. (As amended by Circular No. Other non-risk items as the Monetary Board may. Whenever the capital accounts of an NSSLA are deficient with respect to the preceding paragraph.31 a. such amount invested in bonds or evidences of indebtedness of the Republic of the Philippines or of its subdivisions. fixtures and equipment. whether or not allowed to be set up on a staggered basis. 4118S shall not be reverted to free surplus for distribution to members unless and until the discrepancy between the general ledger accounts and their respective subsidiary ledgers for which the surplus reserve has been set up ceases to exist. whether or not allowed to be set up on a staggered basis. 4116S. (As amended by Circular No. Discrepancies between general ledger and subsidiary ledger accounts. fixtures and equipment necessary for the conduct of its business need not set up the reserve: Provided. as determined by its board of trustees. b. Basis for participation in profits Member-depositors of an NSSLA may participate in the profits of the NSSLA on the basis of their capital contributions on the date distribution of net income to members is approved by its board of trustees/directors. e. That this fact should be certified by its board of trustees in a resolution to be submitted to the appropriate department of the SES for verification and approval: Provided. 4121S . (As amended by Circular No.§§ 4118S . The board of trustees shall also direct the employee responsible for the discrepancy to account for said discrepancy: Provided. NSSLAs shall not distribute any of its net income to their members if their capital-to-risk assets ratio is below the level required under Sec. and of the purchase of office furniture. 4120S (Reserved) E. and this reserve shall not be available for distribution to members or for any other purpose unless and until the discrepancy is accounted for. Level of withdrawable share reserve. Fixtures and Equipment NSSLAs shall set aside five percent (5%) of their yearly net income until it amounts to at least five percent (5%) of the total assets as a reserve for a building fund to cover the cost of construction or acquisition of office premises. f. the NSSLA so exempted may revert the reserves to free surplus. That the failure of the employee to do so shall constitute as ground for his dismissal if the discrepancy is of serious or recurring nature. Capital-to-risk assets ratio. furniture. Furniture. Interest and other income earned but not yet collected/received.Page 4 F. 4126S Limitations on Distribution of Net Income a. c. The unbooked valuation reserves and other unbooked capital adjustments required by the BSP.31 amount equivalent to the amount of the discrepancy. Other unbooked capital adjustments required by BSP. An NSSLA which. or if by such distribution would be reduced below. shall be deducted from the amount of net income available for distribution to members. No NSSLA shall distribute any of its net income to its members if the withdrawable share reserve required under Sec. net of Manual of Regulations for Non-Bank Financial Institutions . (RESERVED) Secs. The surplus reserves set up as required under Sec. 4117S is less than. 573 dated 22 June 2007) Sec. That in case reserves had been set up. d.4126S 07. has adequate office premises. 573 dated 22 June 2007) Sec. 4119S Reserve for Office Premises. The reserve shall be adjusted first before the NSSLA shall distribute its net income at any time of the year.12.4125S (Reserved) S Regulations Part I . however. the amount specified in said Section. NET INCOME DISTRIBUTION Sec. NSSLAs shall report such discrepancies to the appropriate department of the SES within fifteen (15) days from discovery. 7-26-25H).2 Recording of net income for distribution.1 Reporting and verification Declaration of income for distribution to members shall be reported by an NSSLA concerned to the appropriate department of the SES in the prescribed form (Revised BSP Form No. § 4141S. (As amended by Circular No. § 4141S.31 reserve for uncollected interest on loans Accrued interest and other income not yet received but already recorded by an NSSLA. He shall be at least a college graduate or have at least five (5) years experience in business. Responsibilities and Duties of Trustees. or shall have undergone any BSP training in NSSLA or banking operations: Provided.1 Definition of trustees Trustees shall include: (a) those who are named as such in the articles of incorporation. That undergraduates eligible to be elected as trustees in the NSSLA’s by-laws may be allowed as may be approved by the Monetary Board. such person shall have the qualifications and none of the disqualifications as provided in pertinent laws and BSP rules.12. no advice against such distribution has been received by the NSSLA concerned. For purposes of this Section. A trustee shall have the following minimum qualifications: a. (b) those duly elected in subsequent meetings of the NSSLA’s members. if after twenty (20) business days from the date of the report required herein shall have been received by the BSP. A memorandum entry may be made to trustees and for full disclosure purposes. b. 573 dated 22 June 2007) § 4126S. 4127S . or if no such approval is received. He must have attended a special seminar on corporate governance for board Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . (As amended by Circular No. 573 dated 22 June 2007 § 4126S. the NSSLA concerned shall not make any announcement or communication on the intended distribution of net income nor shall any actual distribution be made thereon. c.2 07. net of allowance for uncollected interest on loans. The liability for members’ share in the net income distribution shall be taken up in the books upon receipt of BSP approval thereof. the following shall be the definition. In addition. the declaration may be announced and the income distributed. after twenty (20) business days from the date the required Report on Distributable Net Income was received by the appropriate department of the SES whichever comes earlier.4140S (Reserved) G. and (c) those elected to fill vacancies in the board of trustees. 573 dated 22 June 2007) Secs. responsibilities and duties of trustees. however. In any case. qualifications. Qualifications. 4141S Definition.4141S. EMPLOYEES AND AGENTS Sec. TRUSTEES.Page 5 . Pending verification of above mentioned report by the appropriate department of the SES. shall be deducted from the amount of net income available for distribution to members.2 Qualifications of trustees No person shall be eligible as trustee of an NSSLA unless he is a member of good standing of such NSSLA. He shall be at least twenty-five (25) years of age at the time of his election/ appointment.§§ 4126S . the amount of income for distribution may be disclosed in the financial statements by means of a footnote which should include a statement to the effect that the distribution is subject to review by the BSP. (As amended by Circular No. OFFICERS. The trustees hold their office charged with the duty to act for the NSSLA in accordance with their best judgment. business plans should be established to direct its on-going activities.31 of trustees conducted or accredited by the BSP. The board of trustees shall establish an appropriate compensation package for all personnel which shall be consistent with the interest of all stakeholders. diligence. technical expertise and experience in the institution’s business. The foregoing qualifications for trustees shall be in addition to those already required or prescribed by R. No. its management and employees and the public at large). as amended. competence. The board of trustees should apply fit and proper standards on key personnel. The corporate powers of an NSSLA shall be exercised.12. its business conducted. and other existing applicable laws and regulations. § 4141S. The board of trustees is primarily responsible for the corporate governance of the NSSLA. either current or planned. it Manual of Regulations for Non-Bank Financial Institutions . the board of trustees should establish strategic objectives. the following matters must be considered: integrity/probity. with corrective action taken as needed. policies and procedures that will guide and direct the activities of the NSSLA and the means to attain the same as well as the mechanism for monitoring management’s performance. and d. To ensure prudent and efficient administration of NSSLAs. the NSSLA itself.Page 6 While the management of the day-to-day affairs of the institution is the responsibility of the management team. Integrity.g. He must be fit and proper for the position of a trustee of the NSSLA. Consistent with the institution’s objectives. § 4141S.§§ 4141S. These constituencies or stakeholders have the right to expect that the institution is being run in a prudent and sound manner. Specific duties and responsibilities of the board of trustees (1) To select and appoint officers who are qualified to administer the NSSLA affairs effectively and soundly and to establish adequate selection process for all personnel. 8367. (2) To establish objectives and draw up a business strategy for achieving them.A. S Regulations Part I .3 Powers and authority of the board of trustees. The powers of the board of trustees as conferred by law are original and cannot be revoked by the members. Since reputation is a very valuable asset.4 General responsibility of the board of trustees. and all its property shall be controlled and held by its board of trustees. however. the board of trustees’ choice should share its general operating philosophy and vision for the institution. And because mutual trust and a close working relationship are important. education.4141S.5 Duties and responsibilities of the board of trustees. the following guidelines shall govern the responsibilities and duties of the board of trustees of NSSLAs: a.5 05. The position of an NSSLA trustee is a position of trust. responsible for monitoring and overseeing management action. A trustee assumes certain responsibilities to different constituencies or stakeholders (e. It is the primary responsibility of the board of trustees to appoint competent management team at all times.. the board of trustees is. (3) To conduct the affairs of the institution with high degree of integrity. and experience/training. should be the key considerations in the selection process. its member-depositors and other creditors. To ensure good governance of the NSSLA. The board of trustees should ensure that performance against plan is regularly reviewed. In determining whether a person is fit and proper for the position of a trustee.2 . § 4141S. The board of trustees should prescribe corporate values. (4) To prescribe a clear assignment of responsibilities and decision-making authorities. incorporating a hierarchy of required approvals from individuals to the board of trustees. personal gain at the expense of the institution.5 05.Page 7) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . or unethical conduct shall be strictly prohibited. investing or committing the NSSLA to any financial undertaking or exposure to risk at any time. Among other matters.31 is in the institution’s best interest that in dealings with its members. codes of conduct and other standards of appropriate behavior for itself.Page 6a . equity investments and divestments. sub-committee and such other group for the purpose of lending. The board of trustees shall have a schedule of matters and authorities reserved to it for decision. such as major capital expenditures.12.§ 4141S. (Next page is Part I . committee. the senior management and other employees. activities and transactions that could result or potentially result in conflict of interest. It shall provide policies that will prevent the use of the facilities of the NSSLA in furtherance of criminal and other illegal activities. The board of trustees shall establish in writing the limits of the discretionary powers of each officer. it observes a high standard of integrity. (d) an adequate system for measuring risk. It shall monitor and evaluate the adequacy and effectiveness of the internal control system. and (e) effective internal controls and a comprehensive risk-reporting process. The risk management policy shall include: (a) a comprehensive risk management approach. The Audit Committee shall be composed of trustees. the setting of benchmark and peer group analysis. The board of trustees may constitute a committee for this purpose. as well as its various committees. The board of trustees has a continuing responsibility to provide those services and facilities which will be supportive of the national economy. it may constitute a governance committee. Independent views in board meetings shall be given full consideration and all such meetings shall be duly minuted. the chief executive officer and the NSSLA itself. For this purpose. It is the duty of the board of trustees to present to all its members and to the stakeholders a balanced and understandable assessment of the NSSLA’s performance and financial condition.12. The board of trustees shall be responsible for the formulation and maintenance of written policies and procedures relating to the management of risks throughout the institution. preferably with accounting and finance experience. (b) a detailed structure of limits. To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . The board of trustees shall establish a system of checks and balances which applies in the first instance to the board itself. The board of trustees shall put in place an appropriate reporting system so that it is provided with relevant and timely information to be able to effectively assess the performance of management.5 05. guidelines and other parameters used to govern risk-taking.Page 7 . (10) To keep the individual members of the board and the members informed. All members of the board shall have reasonable access to any information about the institution. It should also provide appropriate information that flows internally and to the public. To properly discharge its function. Said audit committee provides oversight of the institution’s internal and external auditors. (13) To keep their authority within the powers of the institution as prescribed in the articles of incorporation. The system shall also provide a mechanism for effective check and control by the board of trustees over the chief executive officer and key managers and by the latter over the line officers of the NSSLA. (11) To ensure that the NSSLA has beneficial influence on the economy. (12) To assess at least annually its performance and effectiveness as a body.§ 4141S. (8) To constitute the Audit Committee. but not limited to. the board of trustees shall meet regularly. Towards this end. by-laws and in existing laws. It shall be responsible for the setting up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor. (6) To monitor. a system and procedure for evaluation shall be adopted which may include. an effective system of checks and balances must exist. rules and regulations. The composition of the board of trustees shall also be reviewed regularly with the end in view of having a balanced membership.31 (5) To effectively supervise the NSSLA’s affairs. Among the members of the board. (c) a clear delineation of lines of responsibilities for managing risk. (7) To adopt and maintain adequate risk management policy. (9) To meet regularly. assess and control the performance of management. 4142S 05. and where applicable. Trustees should.§§ 4141S. Sec. (4) To act judiciously. or whose duties as such are defined in the by-laws. He should avoid situations that would compromise his impartiality. he shall also give due regard to the rights and interests of other stakeholders. (6) To have a working knowledge of the statutory and regulatory requirements affecting the NSSLA. When a disagreement with others occurs.5 . with the care which an ordinarily prudent man would exercise under similar circumstances. Corollarily. (3) To devote time and attention necessary to properly discharge their duties and responsibilities. It may also constitute a compliance committee. Trustees must observe the confidentiality of nonpublic information acquired by reason of their position as trustees. A trustee must always act in good faith. the requirements of the BSP.Page 8 participate in board and committee meetings. If a person cannot give sufficient time and attention to the affairs of the institution. (2) To act honestly and in good faith. if any. regardless of the amount of their capital contributions. Vice-President. Corporate Secretary. request and review meeting materials. Specific duties and responsibilities of a trustee (1) To conduct fair business transactions with the NSSLA and to ensure that personal interest does not bias board decisions. Before deciding on any matter brought before the board of trustees. (7) To observe confidentiality. b. A trustee should view each problem/ situation objectively. the board of trustees shall appoint a compliance officer who shall be responsible for coordinating. monitoring and facilitating compliance with existing laws and regulations. Officers shall include the President. avoid situations that would give rise to a conflict of interest. its members. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. They must be constantly aware of the institution’s condition and be knowledgeable enough to contribute meaningfully to the board’s work. the requirements of other regulatory agencies. He should not be afraid to take a position even though it might be unpopular. ask questions and seek clarifications when necessary. he should support plans and ideas that he thinks will be beneficial to the institution. every trustee should thoroughly evaluate the issues. They may not disclose said information to any other person without the authority of the board. They must attend and actively S Regulations Part I . If transactions with the institution cannot be avoided. he shall neither accept his nomination nor run for election as member of the board of trustees. A trustee also keeps himself informed of the industry developments and business trends in order to safeguard the institution’s competitiveness. While a trustee should always strive to promote the interest of all members.12.31 laws and regulations. with loyalty and in the best interest of the NSSLA. including the content of its articles of incorporation and by-laws. it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. Trustees shall devote sufficient time to familiarize themselves with the institution’s business. General Manager. 4142S Definition and Qualifications of Officers. whenever possible. and creditors. ask questions and request explanations. (5) To exercise independent judgment. Manual of Regulations for Non-Bank Financial Institutions . The basic principle to be observed is that a trustee should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. Treasurer and others mentioned as officers of the NSSLA. he should carefully evaluate the situation and state his position. (3) Persons who have been convicted by final judgment of the court for violation of banking/quasi-banking/NSSLA laws. forgery. § 4142S.P. Blg. or have undergone training in NSSLA or banking operations acceptable to the appropriate department of the SES. No. rules and regulations. and others mentioned as officers of the NSSLA. or are generally known to be the officers of the NSSLA (or any of its branches and offices other than the head office) either through announcement. He shall be at least a college graduate or have at least five (5) years experience in NSSLA or banking operations or related activities or in a field related to his position and responsibilities. 22. publication or any kind of communication made by the NSSLA. executive vice president. 8367.1 Persons disqualified to become trustees. embezzlement. the following matters must be considered: integrity/probity.A. Without prejudice to specific provisions of law prescribing disqualifications for trustees. rules and regulations where a penalty of removal from office is Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . He shall be at least twenty-one (21) years of age. falsification. QBs and trust entities found by the Monetary Board as administratively liable for violation of banking laws. (4) Persons who have been judicially declared insolvent. estafa. No. b. § 4143S. competence.A. Trustees/ officers/employees permanently disqualified by the Monetary Board from holding a director/trustee position: (1) Persons who have been convicted by final judgment of a court for offenses involving dishonesty or breach of trust such as but not limited to. c.An officer shall have the following minimum qualifications: a. robbery. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees). malversation. violation of AntiGraft and Corrupt Practices Act and prohibited acts and transactions under Section 7 of R. swindling.§§ 4142S . 4143S Disqualification of Trustees and Officers. In determining whether a person is fit and proper for the position of an officer. Permanently disqualified. bribery. secretary. education. treasurer. The following regulations shall govern the disqualification of NSSLAs’ trustees and officers.1 Definition of officers Officers shall include the president. and experience/training. senior vice president. representation. § 4142S. the following are disqualified from becoming trustees: a. and other existing applicable laws and regulations. A person holding the position of chairman. He must be fit and proper for the position of an officer of the NSSLA. or those whose duties as such are defined in the by-laws. spendthrift or incapacitated to contract. violation of B. general manager. extortion. (2) Persons who have been convicted by final judgment of a court sentencing them to serve a maximum term of imprisonment of more than six (6) years. diligence.12. vice-chairman or any other position of the board who also performs functions of management such as those ordinarily performed by regular officers shall also be considered an officer. (5) Trustees. theft.31 The minimum qualifications for trustees prescribed in Sec. Sec. vice president.4143S.Page 9 . (6) Trustees and officers of banks. 4141S are also applicable to officers. as amended.2 Qualifications of officers. officers or employees of closed banks/QBs/trust entities who were found to be culpable for such institution’s closure as determined by the Monetary Board.1 07. The foregoing qualifications for officers shall be in addition to those already required or prescribed by R. association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items “(i)”. 22.1 07. and trustees who failed to physically attend for whatever reasons in at least twenty-five percent (25%) of all board meetings in any year. This disqualification applies only for purposes of the immediately succeeding election. (ii) The spouse or child under the parental authority of the trustee or officer. (2) Trustees who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings. extortion. violation of banking laws. (b) Obligations shall include all borrowings from a bank/QB/trust entity/ NSSLA/other FIs obtained by: (i) A trustee or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor. but not limited to. under different credit lines or loan contracts. b. Temporarily disqualified.12. forgery. embezzlement. or (7) Trustees and officers of banks. Trustess/ officers/employees disqualified by the Monetary Board from holding a trustee position for a specific/indefinite period of time. and which finding of the Monetary Board has become final and executory.A. or at least two (2) obligations with other banks/FIs.31 imposed. and which finding of said government agency has become final and executory. are past due pursuant to existing regulations. theft.P. except that when a notarized certification executed by the corporate secretary has been submitted attesting that said trustees were given the agenda materials prior to the meeting and that their comments/decisions thereon were submitted for deliberation/discussion and were taken up in the actual board meeting. rules and regulations or Manual of Regulations for Non-Bank Financial Institutions . (4) Persons who have been convicted by a court for offenses involving dishonesty or breach of trust such as. violation of Anti-Graft and Corrupt Practices Act and prohibited acts and transactions under Section 7 of R. robbery. (iv)A partnership of which a trustee or officer. falsification. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees). rule or regulation of the BSP. (iii)Any person whose borrowings or loan proceeds were credited to the account of. or used for the benefit of a trustee or officer. No. bribery.Page 10 (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with an NSSLA where he/she is a trustee or officer. of the board of trustees during their incumbency. swindling. or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership. estafa. endorser or surety for loans from such FIs. memorandum. rules and regulations or any offense/violation involving dishonesty or breach of trust. This disqualification shall be in effect as long as the refusal persists. violation of B.§ 4143S. malversation. and (v) A corporation. Included are: (1) Persons who refuse to fully disclose the extent of their business interest or any material information to the appropriate department of the SES when required pursuant to a provision of law or of a circular. This disqualification shall be in effect as long as the delinquency persists. S Regulations Part I . QBs and trust entities or any person found by the Monetary Board to be unfit for the position of trustees or officers because they were found administratively liable by another government agency for violation of banking laws. “(ii)” and “(iv)”. said trustees shall be considered present in the board meeting. both regular and special. Blg. (5) Trustees and officers of closed banks/QBs/trust entities/NSSLAs and other FIs under BSP supervision/regulation pending their clearance by the Monetary Board. (6) Trustees disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. and which finding of the Monetary Board is pending appeal before the appellate court.Page 11 . or on the official files of. unless execution or enforcement thereof is restrained by the court. This disqualification applies until they have cleared themselves of the alleged irregularities/violations or after a lapse of five (5) years from the time the complaint. quasi-judicial bodies. This disqualification applies until the trustee concerned had attended such seminar. rules and regulations that would adversely affect the integrity of the trustee/officer or the ability to effectively discharge his duties. rules and regulations or any offense/violation involving dishonesty or breach of trust. (7) Trustees who failed to attend the special seminar on corporate governance for board of trustees required by BSP. rules and regulations where a penalty of removal from office is imposed. (12) Ttrustees and officers of banks. was initiated. (11) Trustees and officers of banks. regardless whether the finding of the Monetary Board is final and executory or pending appeal before the appellate court. from the Monetary Board after showing good and justifiable reasons. rules and regulations where a penalty of suspension from office or fine is imposed. monetary authorities and similar agencies or authorities of foreign countries for irregularities or violations of any law.12.1 07. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity or upon clearance. (8) Persons dismissed/terminated from employment for cause. unless execution or enforcement thereof is restrained by the court. unless execution or enforcement thereof is restrained by the court. and which finding of said government agency is pending appeal before the appellate court. the judiciary. and (13) Trustees and officers of banks.31 those sentenced to serve a maximum term of imprisonment of more than six (6) years but whose conviction has not yet become final and executory. or after the lapse of five (5) years from the time they were officially advised by the appropriate department of the SES of their disqualification. QBs and trust entities found by the Monetary Board as administratively liable for violation of banking laws. NBI. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate department of the SES of such trustees’ election/re-election.§ 4143S. 584 dated 28 September 2007 and 513 dated 10 February 2006) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . QBs and trust entities or any person found by the Monetary Board to be unfit for the position of trustees or officers because they were found administratively liable by another government agency for violation of banking laws. (10) Persons with derogatory records as certified by. PNP. (As amended by Circular Nos. The disqualification shall be in effect during the period of suspension or so long as the fine is not fully paid. which was the basis of the derogatory record. on their request. QBs and trust entities found by the Monetary Board as administratively liable for violation of banking laws. international police. other government agencies. (9) Those under preventive suspension. Grounds for disqualification made known to the NSSLA shall be reported to the appropriate department of the SES within seventy-two (72) hours from knowledge thereof. d.2. whether full time or part time. Except as may be authorized by the Monetary Board or the Governor. the concerned trustee or officer shall be given a period of thirty (30) calendar days within which to settle said obligation or. chief cashier or chief accountant is disqualified from holding or being elected or appointed to any of said positions in the same NSSLA. On the basis of knowledge and evidence on the existence of any of the grounds for disqualification mentioned in Subsecs. foreigners cannot be officers or employees of NSSLAs. The trustee/officer concerned shall be afforded the opportunity to defend/clear himself/herself. Upon receipt of the reply/ explanation of the trustee/officer concerned. general manager. b.4143S. § 4143S. Except as may otherwise be allowed under C. c. said failure to reply shall be deemed a waiver and the appropriate department of the SES shall proceed to evaluate the case based on available records/evidence. and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of manager. except those stated in Items “b(2)” and “b(7)”. except in cases where such service is incident to financial assistance provided by the government or GOCCs or in cases allowed under existing law.1 shall likewise apply to officers. If no reply has been received from the trustee/officer concerned upon the expiration of the period prescribed under Item “b” above. this shall be without prejudice to the authority of the Monetary Board to S Regulations Part I .3 07. While the concerned NSSLA may conduct its own investigation and impose appropriate sanction/s as are allowable. The disqualifications for trustees mentioned in Subsec. c. 108. and d.Page 12 disqualify a trustee/officer/employee from being elected/appointed as trustee/officer in any FI under the supervision of the BSP. the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of chairman.1 .A. cashier. the trustee or officer concerned shall be notified in writing either by personal service or through registered mail with registry return receipt card at his/her last known address by the appropriate department of the SES of the existence of the ground for his/her disqualification and shall be allowed to submit within fifteen (15) calendar days from receipt of such notice an explanation on why he/she should not be disqualified and included in the watchlisted file. Any appointive or elective public official. If the ground for disqualification is delinquency in the payment of obligation. vice chairman.§§ 4143S. b. Manual of Regulations for Non-Bank Financial Institutions . No.3 Disqualification procedures a.2 Persons disqualified to become officers a. The board of trustees and management of every NSSLAs shall be responsible for determining the existence of the ground for disqualification of the NSSLA’s trustee/officer or employee and for reporting the same to the BSP. or accountant of a branch or office of an NSSLA is disqualified from holding or being appointed to any of said positions in the same branch or office. treasurer. together with the evidence in support of his/her position.12. The head of said department may allow an extension on meritorious ground. e. otherwise known as “The Anti-Dummy Law. the appropriate department of the SES shall proceed to evaluate the case.1 and 4143S. president. executive vice president or any position of equivalent rank. 4143S.” as amended.31 § 4143S. 4143S. When there is evidence that a trustees/officer has committed irregularity. If the disqualification is based on dismissal from employment for cause. For trustees/officers of closed QBs.Page 12a . The board of trustees of the concerned institution shall be immediately informed of cases of disqualification approved by the Monetary Board and shall be directed to act thereon not later than the following board meeting. The evaluation of the case shall be made for the purpose of determining if disqualification would be appropriate and not for the purpose of passing judgment on the findings and decision of the entity concerned. Persons who are elected or appointed as trustee or officer in Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . On the other hand. NSSLAs or other FIs under BSP supervision. k. trust entities. Upon approval by the Monetary Board. the concerned trustee/officer shall be informed by the appropriate department of the SES in writing either by personal service or through registered mail with registry return receipt card. if the trustee/officer concerned is found to be responsible for the closure of the institution. as much as practicable. “c” and “d” above. in its judgment the act committed or omitted by the trustee/ officer concerned does not warrant disqualification. the corporate secretary shall report to the Governor of the BSP through the appropriate department of the SES the action taken by the board on the trustee/officer involved. If the trustee/ officer is cleared from involvement in any irregularity. reprimand. All other cases of disqualification. Trustees/officers with pending cases/complaints shall also be included in said masterlist of temporarily disqualified persons upon approval by the Monetary Board until the final resolution of their cases. g. Within seventy-two (72) hours thereafter. to explain why he/she should not be disqualified and included in the watchlisted file.. at his/her last known address of his/her disqualification from being elected/ appointed as trustee/officer in any FI under the supervision of BSP and/or of his/her inclusion in the masterlist of watchlisted persons so disqualified. the concerned department of the SES shall recommend to the Monetary Board his/her delisting from the masterlist of temporarily disqualified persons and his/ her inclusion in the masterlist of permanently disqualified persons. before the evaluation on his disqualification and watchlisting is elevated to the Monetary Board. j. the concerned department of the SES shall make appropriate recommendation to the Monetary Board clearing said trustees/ officers when there is no pending case/ complaint or evidence against them. the appropriate department of the SES shall.3 07. endeavor to establish the specific acts or omissions constituting the offense or the ultimate facts which resulted in the dismissal to be able to determine if the disqualification of the trustee/officer concerned is warranted or not. i.12. “b”. the appropriate department of the SES shall recommend to the Monetary Board his/her delisting. the appropriate department of the SES shall make recommendation to the Monetary Board that his/her case be referred to the OSI for further investigation and that he/she be included in the masterlist of temporarily disqualified persons until the final resolution of his/her case.) if. suspension.31 restore it to its current status or. etc. whether permanent or temporary shall be elevated to the Monetary Board for approval and shall be subject to the procedures provided in paragraphs “a”. f.§ 4143S. h.g. The appropriate department of the SES may decide to recommend to the Monetary Board a penalty lower than disqualification (e. 4141S. the concerned trustee/ officer/employee shall be informed through registered mail. The BSP will disclose information on its watchlist files only upon submission of a duly accomplished and notarized authorization from the concerned person and approval of such request by the Deputy Manual of Regulations for Non-Bank Financial Institutions . (2) Disqualification File “B” (Temporary) -Trustees/officers/employees temporarily disqualified by the Monetary Board from holding a trustee/officer position in any institution under the supervision/regulation of BSP. Watchlisting shall be for internal use only and may not be accessed or queried upon by outside parties including banks. shall vacate their respective positions immediately. (As amended by Circular No. Whenever a trustee/officer is cleared in the process mentioned under Item “c” above or. Confidentiality. the SES shall maintain a watchlist of disqualified NSSLA trustees/ officers under the following procedures: a. 4143S. 584 dated 28 September 2007) § 4143S.Page 12b -Trustees/officers/employees permanently disqualified by the Monetary Board from holding a trustee/officer position in any institution under the supervision/regulation of BSP.2. other NSSLAs and FIs under BSP supervision.§§ 4143S. Inclusion of trustees/officers/ employees in the watchlist. Watchlisting shall be categorized as follows: (1) Disqualification File “A” (Permanent) S Regulations Part I . § 4143S.5 (Reserved) § 4143S.12. d. actions or reports of the courts. shall be afforded the procedural due process prescribed above. It shall be the responsibility of the appropriate department of the SES to elevate to the Monetary Board the lifting of the disqualification of the concerned trustee/officer and his/her delisting from the masterlist of watchlisted persons.2/4142S. or the Monetary Board.2 or possessing any of the disqualifications as enumerated in Subsecs.6 Watchlisting.3 . Upon approval by the Monetary Board.1/ 4143S.4143S. b. QB. BSP. when the ground for disqualification ceases to exist. Watchlist categories. with registry return receipt card at his/her last known address of his/ her inclusion in the masterlist of watchlisted persons disqualified to be a trustee/officer in any FI under the supervision of the BSP. QBs. NSSLAs or other FIs under BSP supervision except with the authority of the person concerned and with the approval of the Deputy Governor. NBI or any other administrative agencies shall first be approved by the Monetary Board.31 any of the BSP-supervised institutions for the first time but are subject to any of the grounds for disqualification provided for under Subsecs. trust entities.2.1 and 4143S. To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as trustee or officer of an NSSLA. Trustees/officers elected or appointed without possessing the qualifications in Subsecs. or the Governor.4 Effect of non-possession of qualifications or possession of disqualifications. trust entity or any institution under the supervision of the BSP only upon prior approval by the Monetary Board. banks. the inclusion of trustees/officers/employees in watchlist disqualification files “A” and “B” on the basis of decisions. Upon recommendation by the appropriate department of the SES.4143S. SES. c. he/she would be eligible to become trustee or officer of any bank.6 07. Notification of trustees/officers/ employees. QBs. l. Page 12c . trust entity or such other agency/body where the concerned individual had derogatory record. Delisting. officers and employees. All delistings shall be approved by the Monetary Board upon recommendation of the appropriate department of the SES except in cases of persons known to be dead. court. (c) Upon favorable decision or clearance by the appropriate body. NSSLA or other FI under BSP supervision.§§ 4143S. gratuity or reward based on the volume or number of loans made. or c. bank.Page 13) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I .e. QB. Trustees/ officers/employees delisted from the Watchlist – Disqualification File “B” other than those upgraded to Watchlist – Disqualification File “A” shall be eligible for re-employment with any bank. officer.4144S. in which case the trustee/officer/employee is relisted to Watchlist – Disqualification File “A” (Permanent). The prescribed authorization form to be submitted to the concerned department of the SES is in Appendix Q-45. Receipt or payment of bonuses of trustees. breach of trust and/or violation of banking laws becomes final and executory. officers or employees if such bonuses are based on the profits and not on the volume or number of loans made or on the interest or fees collected thereon.All increases in compensation.A. NBI. or employee of such NSSLA. in any form. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist – Disqualification File “B” (Temporary) – (a) After the lapse of the specific period of disqualification. (b) When the conviction by the court for crimes involving dishonesty. e.1 Compensation increases. Receipt or payment of commissions to agents whether or not based on the volume or number of loans or on the interest and fees collected thereon. NSSLAs must obtain the said authorization on an individual basis. any commission. Officers and Employees. i. § 4144S. No.6 . Nothing in this Section. and any (Next page is Part I . trust entity. SES or the Governor or the Monetary Board. emolument. (As amended by CL-2007-001 dated 04 January 2007 and CL-2006-046 dated 21 December 2006) Sec. No trustee. 4144S Compensation of Trustees..31 Governor.2 07. No NSSLA shall make or purchase any loan or investment not authorized or permitted under R. of all trustees and trustee-officers in excess of ten percent (10%) thereof per annum shall require the approval of the BSP. QB. or based on the interest or fees collected thereon. NSSLAs can gain access to information in the said watchlist for the sole purpose of screening their applicants for hiring and/ or confirming their elected trustees and appointed officers. prohibits or limits any of the following: a.12. where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. Receipt or payment of salaries of trustees. officer or employee of an NSSLA shall receive from such NSSLA and no NSSLA shall pay to any trustee. 8367. § 4144S.2 Liability for loans contrary to law. b. however. the Monetary Board may impose the following restrictions in the compensation and other benefits of trustees and officers: (a) Except for the financial assistance to meet expenses for the medical. in the regular discharge of their duties have access to money or negotiable securities shall. and (2) It has suffered continuous losses from operations for the past three (3) years. who on behalf of any such NSSLA.0 million shall maintain a full-time manager to take charge of the operations of the NSSLA. Capital contribution or a cash bond deposited with the NSSLA or with a bank. b. such as. In the presence of any one (1) or more of the circumstances mentioned above.§§ 4144S. Secs. All officers and employees of an NSSLA who. allowances.2 . fees and bonuses of trustees and officers are significantly excessive as compared with industry averages. and fringe benefits to its trustees and officers in exceptional cases and when the circumstances warrant. education and other emergency needs of the trustees or officers or their immediate family. respectively. the following cases: (1) Its capital is impaired. The bond of the cashier. Prior BSP authority shall be obtained before operating a branch or other offices. Sec. Sec. 4145S Bonding of Officers and Employees. but not limited to the following: a.Page 13 . When the NSSLA is found by the Monetary Board to be in an unsatisfactory financial condition such as.2 and 4143S.4150S (Reserved) H. other forms of financial assistance may be suspended. No license is required for a collector of an NSSLA but no person shall hold himself out or act as collector unless he is authorized as a collector in writing by such NSSLA. and other employees having money accountability shall not be less than their average daily accountability.12. 4142S. 4149S . treasurer. knowingly makes or purchases any such loan or investment or who knowingly consents thereto shall be personally liable to the NSSLA for the full amount of any such loan or investment. maternity. BRANCHES AND OTHER OFFICES Sec. 4146S Agents and Representatives No person shall act as an agent or sales representative of an NSSLA or operate an agency without obtaining a license from the Monetary Board. before entering upon such duties. allowances.2. bonuses. 4148S Full-Time Manager for NSSLAs NSSLAs with total assets of at least P5. 4151S Establishment of Branches/ Extension Offices. officer or employee. The manager shall possess all the qualifications and shall not have any disqualification under Subsecs. Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . the Monetary Board may regulate/ restrict the payment by the NSSLA of compensation. To protect the funds of depositors and creditors. When the NSSLA is found by the Monetary Board to be conducting business in an unsafe or unsound manner. but not limited to. The bond must be issued by a reputable bonding company duly licensed by the Insurance Commission and approved by the BSP.4151S 05. furnish to the employing NSSLA a good and sufficient bond and providing for indemnity to the NSSLA against the loss of money or securities. by reason of their dishonesty. (b) When the total compensation package including salaries. assistant cashier. the Monetary Board may order their reduction to reasonable levels. 4147S (Reserved) Sec.31 trustee. Sec. fees. may also be allowed. Actual operation shall commence only after a permit to operate has been issued by the BSP. The application shall not be accepted/processed in any of the following cases: a.1 Application. NSSLAs shall have a true and accurate account. Secs.1 Uniform System of Accounts.1 . No.4155S (Reserved) I. Certification as to the actual number of members that will be serviced by the branch/extension office. NSSLAs are required to pattern their charts of accounts and recording systems after the Uniform System of Accounts prescribed for NSSLAs including Manual of Regulations for Non-Bank Financial Institutions . d. c.31 § 4151S. Undertaking that the branch/ extension office will service only members of the NSSLA. The NSSLA’s operation during the year immediately preceding the date of filing of application was unprofitable.A. adopt such business days and hours as may be convenient for them.4160S (Reserved) § 4151S. Description or enumeration of service facilities that will cater to the deposit and credit needs of members of the NSSLA.4161S. 7653 and/or the applicable provisions of the Revised Penal Code. 4152S . Sketch of the location of the proposed office which shall be within the compound of the mother firm’s branch office. § 4161S. Financial statements for the year immediately preceding the date of application. 4156S Business Days and Hours NSSLAs may. Secs. NSSLAs shall be open for business during business hours and days except when extraordinary instances caused by unforeseen. without prejudice to the criminal liability of the director or officer responsible therefore under Sections 35 and 36 of R. S Regulations Part I . e.A. 4161S Records. or d. Records shall be up-to-date and shall contain sufficient detail so that an audit trail is established. b. 4157S . rules. c.§§ 4151S. Itemized statement of estimated receipts and expenses of the NSSLA in connection with such branch or extension office.1 05. § 4151S.2 Conditions precluding acceptance/processing of application. Non-compliance by the NSSLA with any of the pertinent provisions of banking laws. Total capital accounts of the NSSLA are less than P100 million as of the date of filing of the application. and f. REPORTS Sec.Page 14 J. Total number of members to be served in the proposed branch/extension office is less than 500.4 Permit to operate. NSSLAs shall post conspicuously at all times in their place of business their schedule of regular business hours and days. b. § 4151S. record or statement of their daily transactions.3 Internal control system. 7653. with the prior approval of the appropriate SED of the BSP. The making of any false entry or the willful omission of entries relevant to any transaction is a ground for the Monetary Board for the imposition of administrative sanctions under Section 37 of R. No. BUSINESS DAYS AND HOURS Sec. The application shall be prescribed by the appropriate SED of the BSP and accompanied by the following minimum requirements: a. unavoidable event directly affect the NSSLA’s ability to open for business. regulations and policies of the BSP.12. The NSSLA shall submit to the appropriate SED of the BSP a system of internal safeguards and control measures to be adopted for compliance by the staff of the proposed branch/extension office. 12. For purposes hereof. Accounting treatment for prudential reporting.§§ 4161S.4162S 07. Government grants extended in the form of loans bearing nil or low interest rates shall be measured upon initial recognition at its fair value (i. or such other accounting system acceptable to the BSP as well as the prescribed chart of accounts shall be adopted for use by NSSLAs. For prudential reporting. The provisions on government grants shall be applied retroactively to all outstanding government grants received. Financial/non-financial allied/non-allied associates shall be accounted for using the equity method in accordance with the provisions of PAS 28 “Investments in Associates”. It is in this light that the BSP aims to adopt all PFRS and PAS issued by the ASC to the greatest extent possible. However.e. NSSLAs shall adopt the PFRS and PAS which are in accordance with generally accepted accounting principles in recording transactions and in the preparation of financial statements and reports to BSP. shall also be accounted for using the equity method. transparency and accuracy in financial reporting. the present value of the future cash flows of the financial instrument discounted using the market interest rate). b. The difference between the fair value and the net proceeds of the loan shall be recorded under “Unearned Income-Others”. FIs shall be required to meet the BSP recommended valuation reserves. The voucher system of accounting or the ticket system. NSSLAs that adopted an accounting treatment other than the foregoing shall consider the adjustment as a change in accounting policy. financial/non-financial allied/non-allied subsidiaries/associates.Page 15 . That FIs shall submit to the BSP adjusting entries reconciling the balances in the financial statements for prudential reporting with that in the audited annual financial statements. and c. In preparing consolidated financial statements. It is the policy of the Bangko Sentral to promote fairness. (As amended by Circular No. § 4161S. Notwithstanding the exceptions in Items “a”. including insurance subsidiaries/associates. which shall be amortized over the term of the loan using the effective interest method.1 . the PFRS/PAS shall refer to issuances of the ASC and approved by the PRC.. Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . while insurance and non-financial allied subsidiaries shall be accounted for using the equity method. FIs shall adopt in all respect the PFRS and PAS except as follows: a. the option or limit prescribed by BSP regulations shall be adopted by all NSSLA/FIs. only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated on a line-by-line basis. “b” and “c”. the audited annual financial statements required to be submitted to the BSP in accordance with Appendix S-2 shall in all respect be PFRS/ PAS compliant: Provided. For purposes of preparing separate financial statements. 572 dated 22 June 2007) Sec.31 reportorial and publication requirements. 4162S Reports.2 Philippine Financial Reporting Standards/Philippine Accounting Standards Statement of policy. which shall be accounted for in accordance with PAS 8. in cases where there are differences between BSP regulations and PFRS/PAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the PFRS/PAS. NSSLAs shall submit to the appropriate department of the SES of the BSP the reports in prescribed form listed in Appendix S-2. 1 Categories and signatories of reports. Category A-1 reports shall be signed by the NSSLA’s chief executive officer (who may be the president or chairman of the board. Definition of Terms. investigation and inspection Manual of Regulations for Non-Bank Financial Institutions . shall be submitted to the appropriate department of the SES within three (3) days from the date of resolution. controller or chief accountant. or in his absence.. the appropriate department of the SES shall refuse to acknowledge the report as valid or consider the report as not having been submitted at all. (2) Willful delay in the submission of reports shall refer to the failure of any NSSLA to submit on time the report defined in Item “(1)” above. Category A-2 reports of the head office of the NSSLA shall be signed by the NSSLA’s president or senior vice-president/ equivalent position. certain weekly. unless otherwise specified in the circular or memorandum of the Monetary Board or the BSP.12. (3) Examination shall include.2 Manner of filing.3 Sanctions and procedures for filing and payment of fines.4162S. Failure to submit a report on time due to fortuitous events. A-3 and Category B. quarterly. The submission of the reports shall be effected by filing them personally with the appropriate department of the SES or with the BSP Regional Offices or by sending them registered mail or special delivery. the following rules shall apply: a. If such a report is not resubmitted by the NSSLA under the signature of a duly authorized signing officer. or designated in the by-laws). who shall likewise be duly authorized by the NSSLA’s board of trustees in a format prescribed in Appendix S-3a. If a report is submitted to the BSP under the signature of an officer who is not listed or included in any of the resolutions S Regulations Part I . Category A-3 and B reports are those required to be submitted to the BSP and are not included in Categories A-1 and A-2. as enumerated in Appendix S-3.1 . Offices/units (such as branch) reports in this category shall be signed by their respective managers/ officers-in-charge. They shall be signed by officers or their alternates. § 4162S. A-2. administrative sanctions/penalties shall be imposed on the erring NSSLA for the late reporting or failure to submit the required report.§§ 4162S. the verification. For willful delay in the submission of reports. semi-annual.31 § 4162S.3 07. monthly. covering the initial designation and subsequent changes in signatories and alternates.Page 16 mentioned above. review. by the executive vice president or the officer duly authorized under a resolution approved by the board of trustees and by the chief finance officer (i. § 4162S. the signing authority in this category shall be contained in a resolution approved by the board of trustees in the format prescribed in Appendix S-3b. who shall be duly designated by the board of trustees. Likewise. but need not be limited to. The following definitions shall apply: (1) Report shall refer to all written reports/statements required of an NSSLA to be submitted to the BSP periodically or within a specified period. such as fire and other natural calamities and public disorders. For purposes of designating the signatories of reports. audit. A copy of the board resolution with format as prescribed in Appendix S-3c. as the case may be. Failure to submit the above reports on or before the specified dates shall subject the person responsible or entity concerned to the penalties provided by law. and annual statements/reports required to be submitted to the BSP are hereby grouped into Category A-1. shall not be considered as willful delay.e. Sanctions for willful refusal to permit examination/making of false statement (1) Any NSSLA which shall willfully refuse to permit examination shall pay a fine of P3. including the act of refusing to honor a letter of authority to examine presented by any officer/ examiner/employee of the BSP. If the NSSLA continues to refuse said examination without any satisfactory explanation therefor. 4162S governing the frequency and deadlines indicated in Appendix S-2 shall be automatically moved to the next business day whenever a half-day suspension of business operations in government offices is declared due to an emergency such as typhoon. delay or default shall start to run on the day following the next working day. A. NSSLAs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: (1) For Categories A-1. or other officer-in-charge of any NSSLA who willfully refuses any lawful examination into the affairs of such NSSLA. 7653 shall apply to any agent. However. The willful making of a false statement or misleading statement on a material fact to department of the BSP charged with the regulation of NSSLAs or to his examiner shall be punished in accordance with Section 36 of R. the BSP officer/examiner/employee concerned shall submit a report to that effect to the appropriate department head. administration and financial condition of any NSSLA including the reproduction of the records as well as the taking possession of the books and records and keeping them under BSP custody after giving proper receipts therefor. It shall also include the interview of the directors and personnel of any NSSLA. who shall forthwith make a written demand upon the NSSLA concerned for such examination. (b) The fine shall be imposed starting on the day following the receipt by the appropriate department of the written report submitted by the BSP officer/examiner/ employee concerned regarding the Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I .31 of the books and records. Delayed schedules/attachments and amendments shall be considered late reporting subject to above penalties. For the purpose of establishing delay or default. A-2 and A-3 reports Per day of default until the report is filed P180 (2) For Category B reports Per day of default until the report is filed 60 Delay or default shall start to run on the day following the last day required for the submission of reports. the date of acknowledgment by the appropriate department of the SES or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted or the date of mailing postmarked on the envelope/the date of registry or special delivery receipt.Page 17 . (2) Procedures in imposing the fine (a) The BSP officer/examiner/ employee shall report the refusal of the NSSLA to permit examination to the head of the appropriate department of BSP. shall be considered as the date of filing.12. should the last day of filing fall on a nonworking day in the locality where the reporting NSSLA is situated. No. No. etc. (4) Refusal to permit examination shall mean any act or omission which impedes.3 07. b. floods. business affairs. Fines for willful delay in submission of reports. delays or obstructs the duly authorized BSP officer/examiner/employee from conducting an examination. The due date/deadline for submission of reports to BSP as prescribed under Sec. as the case may be. c. The provisions of Section 34 of R.§ 4162S. 7653.000 daily from the day of refusal and for as long as such refusal lasts. A. manager. 1 Status. NSSLAs may appeal to the Monetary Board a ruling of the appropriate department imposing a fine. trust entity or national Coop Manual of Regulations for Non-Bank Financial Institutions .3 07. Review of the systems and procedures of safeguarding assets. or shall be without prejudice to. He must possess the knowledge. findings.§§ 4162S. The foregoing penalties shall not preclude the application of. e. as well as to access any records. Manner of payment or collection of fines. Professional competence as well as continuing training and education shall be required to faceup to the increasing complexity and diversity of the institution’s operations. The scope of internal audit shall include: a. f. S Regulations Part I .31 continued refusal of the NSSLA to permit the desired examination. evaluate and improve the effectiveness of risk management. and governance processes of an organization. QB. c.4164S. g. The internal audit function must be independent of the activities audited and from day-to-day internal control process. Review of the application and effectiveness of risk management procedures and risk assessment methodologies. QB. 4163S (Reserved) Sec. d.3 Qualification standards of the internal auditor. 4601S shall be observed in the collection of the fines from NSSLAs.3 . 4164S Internal Audit Function Internal audit is an independent. internal control. Appeal to the Monetary Board. It shall have authority to directly access and communicate with any officer or employee. The internal auditor of a TB. other administrative sanctions as well as to the filing of criminal case as provided for in the other provisions of the law. opinions. and h.Page 18 § 4164S. The Audit Committee or senior management should take all necessary measures to provide the appropriate resources and staffing that would enable internal audit to achieve its objectives. Review of the system of assessing capital in relation to the estimate of organizational risk. It must be free to report audit results. The regulations embodied in Sec. e. The internal auditor of a UB or a KB must be a CPA and must have at least five (5) years experience in the regular audit (internal or external) of a UB or KB as auditor-in-charge. including the electronic information system and electronic banking services. Other penalties. to examine any activity or entity of the institution. as may be warranted by the nature of the offense. files or data whenever relevant to the exercise of its assignment.12. f. and other competencies to examine all areas in which the institution operates. Transaction testing and assessment of specific internal control procedures. skills. b. objective assurance and consulting function established to examine. senior auditor or audit manager. (As amended by Circular No.2 Scope. § 4164S. trust entity or national Coop Bank must be a CPA with at least five (5) years experience in the regular audit (internal or external) of a TB. Review of the compliance system and the implementation of established policies and procedures. d. Examination and evaluation of the adequacy and effectiveness of the internal control systems. 585 dated 15 October 2007) Sec. Review of the management and financial information systems. § 4164S. appraisals and other information to the appropriate level of management. Assessment of the accuracy and reliability of the accounting system and of the resulting financial reports. The internal auditor of an RB. senior auditor or audit manager. in lieu thereof. senior auditor or audit manager or.12. NSSLA or local Coop Bank or.31 Bank as auditor-in-charge. trust entity or national Coop Bank as auditor-in-charge. at least three (3) years experience in the regular audit (internal or external) of a UB or KB as auditor-in-charge. senior auditor or audit manager. NSSLA or local Coop Bank must be at least an Accounting graduate with two (2) years experience in external audit or in the regular audit of an RB.3 05. at least one (1) year experience in the regular audit (internal or external) of a UB. in lieu thereof. (Next page is Part I . TB. QB.§ 4164S.Page 19) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . KB.Page 18a . NSSLAs. or combination of deficiencies. Web: http:/ /www. (b) date of submission of the financial audit report and certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the NSSLA to the board of directors.4 Code of Ethics and Internal Auditing Standards. If no material weakness or breach is noted to warrant the issuance of an LOC. Material weakness shall be defined as a significant control deficiency. NSSLAs. or as often as necessary. such as the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing (e-mail: standards@theiia. QBs. trust entities.theiia.Page 19 . § 4164S. a Certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the NSSLA shall be submitted in its stead. The internal auditor should conform with the Code of Professional Ethics for CPAs and ensure compliance with sound internal auditing standards. local cooperative banks. quality assurance reviews. and other financial institutions under BSP supervision. that results in more than a remote likelihood that a Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . professional proficiency. NSSLAs except those with total resources of P10. A qualified internal auditor of a TB or national cooperative bank shall likewise be qualified to audit QBs.12.4172S 06. NSSLAs shall cause an annual financial audit by an external auditor acceptable to the BSP not later than thirty (30) calendar days after the close of the calendar year or the fiscal year adopted by the NSSLA.§§ 4164S.0 million or less.31 A qualified internal auditor of a UB or a KB shall be qualified to audit TBs. 4172S Financial Audit. scope of work. national cooperative banks. performance of audit work. The Standards address independence and objectivity. subsidiaries and affiliates engaged in allied activities. (2) reconciliation statement between the AFS and the balance sheet and income statement for NSSLA submitted to the BSP including copies of adjusting entries on the reconciling items.) and other supplemental standards issued by regulatory authorities/ government agencies. shall engage the services of an independent Certified Public Accountant to audit their books of accounts at least once a year. 4165S .3 . 4171S External Auditor. INTERNAL CONTROL Sec. a LOC indicating any material weakness or breach in the institution’s internal control and risk management systems within thirty (30) calendar days after submission of the financial audit report. The report to the BSP shall be accompanied by the: (1) certification by the external auditor on the: (a) dates of start and termination of audit.org. and (3) other information that may be required by the BSP. together with the financial audit report.4170S (Reserved) K. the external auditor shall be required by the NSSLA to submit to the board of directors. Secs. and (c) the absence of any direct or indirect financial interest and other circumstances that may impair the independence of the external auditor. and other financial institutions under BSP supervision. RBs. trust entities. subsidiaries and affiliates engaged in allied activities. Sec. management of internal audit. RBs. Report of such audit shall be submitted to the board of directors and the appropriate department of the SES not later than 120 calendar days after the close of the calendar year or the fiscal year adopted by the NSSLA. communication and monitoring of results.org. In addition. local cooperative banks. a copy of its resolution together with said LOC to the appropriate department of the SES. a copy of its resolution to the appropriate department of the SES. within thirty (30) banking days after receipt of the reports. The resolution shall show. the actions(s) taken on the reports and the names of the directors present and absent. (2) reconciliation statement between the AFS in the AAR and the balance sheet and income statement of the NSSLA submitted to the BSP. or report financial data reliably in accordance with GAAP. That when warranted by supervisory concern such as material weakness/breach in internal control and/or risk management systems. A control deficiency exists when the design or operation of a control does not allow management or employees. The resolution shall show the action(s) taken on the findings and recommendations and. however. A material weakness does not mean that a material misstatement has occurred or will occur. to prevent or detect misstatements on a timely basis. authorize. as well as on the comments and observations and shall submit. a copy of its resolution to the appropriate department of the SES. in the normal course of performing their assigned functions. The term more than remote likelihood shall mean that future events are likely to occur or are reasonably possible to occur.31 material misstatement of the financial statements will not be detected or prevented by the entity’s internal control.Page 20 NSSLAs under BSP supervision which are under the concurrent jurisdiction of the COA shall be exempt from the aforementioned annual financial audit by an acceptable external auditor: Provided. or combination of control deficiencies. but that it could occur. submit a copy of the AAR of the COA to the appropriate department of the SES within thirty (30) banking days after receipt of the report by the board of directors. record. and (3) other information that may be required by the BSP. privatization. including copies of adjusting entries on the reconciling items. That when circumstances such as. NSSLAs under the concurrent jurisdiction of the BSP and COA shall. The resolution shall show the action(s) taken on the report. in a regular or special meeting. The board shall likewise consider and act on the LOC and shall submit. within thirty (30) banking days after receipt thereof. within thirty (30) banking days after receipt of the report. shall consider and act on the financial audit report and the certification under oath submitted in lieu of the LOC and shall submit. the Monetary Board may. that adversely affects the entity’s ability to initiate.12. but not limited to. in a regular or special meeting. S Regulations Part I . process. among other things. The board of directors. the financial audit of the concerned institution by an acceptable external auditor may also be allowed. A significant deficiency is a control deficiency. among other things. loans from multilateral financial institutions. upon recommendation of the appropriate department of the SES. or public listing warrant.§ 4172S 06. require the financial audit to be conducted by an external auditor acceptable to the BSP. shall consider and act on the AAR. The board of directors of said institutions. The LOC shall be accompanied by the certification of the external auditor of the date of its submission to the board of directors. at the expense of the institution concerned: Provided further. the names of the directors present and absent. The AAR shall be accompanied by the: (1) certification by the institution concerned on the date of receipt of the AAR by the board of directors. including the Manual of Regulations for Non-Bank Financial Institutions . (Circular No. statements of cash flows and notes to financial statements which shall include among other information. their subsidiaries and affiliates engaged in allied activities and other financial institutions which under special laws are subject to BSP supervision. and/ or trust entities. R. all their branches and other offices. NSSLAs shall post in conspicuous places in their head offices. their latest financial audit report. On the other hand.The provisions of Items “A” Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . Under Section 58.12. It is the policy of the BSP to promote high ethical and professional standards in public accounting practice and to encourage coordination and sharing of information between external auditors and regulatory authorities of banks.4180S 06. BSP selected external auditors shall apply for the renewal of their selection every three years. The following rules shall govern the utilization and submission of AFS of NSSLAs. income statements. 540 dated 09 August 2006 §4172S. disclosure of the volume of past due loans as well as loan-loss provisions. The selection of external auditors shall be valid for a period of three (3) years. That NSSLAs shall submit to the BSP adjusting entries reconciling the balances in the financial statements for prudential reporting with that in the audited annual financial statements. 4162S. The audited annual financial statements required to be submitted shall in all respect be PFRS/PAS compliant: Provided. among other things. QBs. and/or trust entities to ensure effective audit and supervision of these institutions and to avoid unnecessary duplication of efforts. schedules and attachments required under this Subsection shall be considered Category B reports. financial audit report shall refer to the AFS and the opinion of the auditor.” NSSLAs as well as external auditors shall strictly observe the requirements in the submission of the financial audit report and reports required to be submitted under Appendix Q-33.31 comments and observations and the names of the directors present and absent. reporting requirements and delisting for external auditors of banks. NSSLAs. The reports and certifications of institutions concerned.A. For purposes of this Section. the BSP hereby prescribes the rules and regulations that shall govern the selection. 540 dated 09 August 2006) Secs. appointment. the Monetary Board may require an NSSLA to engage the services of an independent auditor to be chosen by the NSSLA concerned from a list of certified public accountants acceptable to the Monetary Board. Appointment and Reporting Requirements for External Auditors. Effectivity.2 Posting of audited financial statements.Page 21 . (Circular No. Sanction. delayed submission of which shall be subject to the penalties under Subsec. In furtherance of this policy and to ensure that reliance by regulatory authorities and the public on the opinion of external auditors is wellplaced.§§ 4172S . AFS shall include the balance sheets. No. 8791. as well as in their respective websites. The AFS of NSSLAs with subsidiaries shall be presented side by side on a solo basis (parent) and on a consolidated basis (parent and subsidiaries). NSSLAs. QBs.3 (As amended by Circular Nos. 4173S – 4179S (Reserved) Sec. statements of changes in equity.1 Audited Financial Statements of NSSLAs. 554 dated 22 December 2006 and 540 dated 09 August 2006) §4172S. 4180S Selection. furnish the Monetary Board and post in any of the NSSLAs’ bulletin boards or in any other conspicuous place a copy of their financial statements showing. 4181S Publication Requirements NSSLAs shall. Sanctions.4181S 06. MISCELLANEOUS PROVISIONS Sec. The Monetary Board may.§§ 4180S . QBs. The SES shall make an annual assessment of the performance of external auditors and will recommend deletion from the list even prior to the three (3) -year renewal period. The BSP. require the disclosure of such other information as it shall deem necessary for the protection of the members of the NSSLA. investments in financial/non-financial allied/non-allied subsidiaries/associates. including insurance subsidiaries/associates. except that for purposes of consolidated financial statements. (As amended by Circular No. as the case may be. A. (As amended by Circular No. The rules and regulations to govern the selection and delisting by the BSP of external auditors of NSSLAs and their subsidiaries and affiliates engaged in allied activities are shown in Appendix S-8. the amount and character of the assets and liabilities of the NSSLAs at the end of the preceding fiscal year. Financial/non-financial allied/non-allied associates shall be accounted for using the equity method in accordance with the provisions of PAS 28 “Investments in Associates”. however. 494 dated 20 September 2005) Manual of Regulations for Non-Bank Financial Institutions . In case of partnership. if based on assessment. QBs. NSSLAs. in such form and detail as the Monetary Board shall require. within 120 calendar days after the close of the calendar year or their fiscal year. a. Erring external auditors may also be reported by the BSP to the PRC for appropriate disciplinary action. its audit committee and the directors approving the hiring of external auditors who are not in the BSP list of selected auditors for banks.Page 22 Item “I” in Appendix S-8. 529 dated 11 May 2006) L. The BSP will circularize to all banks. inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. No. while insurance and nonfinancial allied subsidiaries shall be accounted for using the equity method.31 and “B” of Appendix S-8 shall likewise apply for each application for renewal. shall be accounted for using the equity method. The consolidated statements of condition of an NSSLA and its subsidiaries and associates shall conform with the guidelines of PAS 27 “Consolidated and Separate Financial Statements”. For purposes of separate financial statements. and trust entities or for hiring. shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks. only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated on a lineby-line basis. in addition to the foregoing. b. 7653 to the extent applicable shall be imposed on the NSSLA. the external auditors’ report did not comply with BSP requirements. QBs. trust entities and NSSLAs the list of selected external auditors once a year. trust entities or NSSLAs for regular audit or special engagements.12. and/or retaining the services of the external auditor in violation of any of the provisions of this Section and for non-compliance with the Monetary Board directive under S Regulations Part I . The applicable sanctions/penalties prescribed under Sections 36 and 37 of R. Rules and regulations. External auditors who meet the requirements specified in this Section shall be included in the list of BSP selected external auditors. c. any advertisement that it is doing or permitted to do business which is prohibited by law to an NSSLA. measure. All NSSLAs should follow the guidance in risk management efforts. or as a trust company. 8367 and licensed by the BSP shall include in their names the words “Savings and Loan Association”. 610 dated 26 May 2008. The guidelines on supervision by risk in Appendix Q-42 which provide guidance on how QBs should identify. 4182S Business Name 1. (As amended by CL Nos. 4183S Prohibitions a. or by analogy.31 Sec. 4194S Market Risk Management. 2008-053 dated 21 August 2008 and 2008-007 dated 05 February 2008) Sec. (Circular No. The guidelines set forth the expectations of the BSP with respect to the management of market risk and are intended to provide more consistency in how the risk-focused supervision is applied See SEC Circular Nos. the following words: “Authorized by the Bangko Sentral ng Pilipinas”. d. (As amended by Circular Nos. partnership or corporation shall do business as an NSSLA. 523 dated 31 March 2006) Sec.4189S (Reserved) Sec. or shall use the terms “Savings and Loan Association” or any other title or name tending to give the public impression that it is engaged in the operations and activities of an NSSLA unless so authorized under R. shall govern the PCA taken on NSSLAs to the extent applicable. No person. 4184S . Secs. No NSSLA shall advertise or represent itself to its members or to the public as a bank. 8367 and these regulations. among other things. 4190S Duties and Responsibilities of NSSLAs and their Directors/Officers in All Cases of Outsourcing of NSSLA Functions The rules on outsourcing of banking functions as shown in Appendix Q-37 shall 1 be adopted in so far as they are applicable to NSSLAs. association. 548 dated 25 September 2006 and 543 dated 08 September 2006) Sec. Such NSSLAs shall display in a conspicuous place at their business offices a sign including. The framework for the enforcement of PCA on banks which is in Appendix Q-40. Manual of Regulations for Non-Bank Financial Institutions S Regulations Part I . The BSP will review the risks to ensure that an NSSLA’s internal risk management processes are integrated and comprehensive. No. b. 4193S Supervision by Risks. NSSLAs organized or operating under R.Page 23 .4194S 08. 5 dated 17 July 2008 and 14 dated 24 October 2000. The use by an NSSLA of any other name or title or combination of names and titles or any other deviation from the requirements of this Section shall not be authorized except upon prior approval of the Monetary Board.A. publish or cause or permit to be issued or published. The guidelines set forth the expectations of the BSP with respect to the management of risks and are intended to provide more consistency in how the risk-focused supervision function is applied to these risks. monitor and control risks shall govern the supervision by risks of NSSLAs to the extent applicable.12. No. 4192S Prompt Corrective Action Framework. 510 dated 03 February 2006) Sec.A. 596 dated 11 January 2008.§§ 4182S . 4191S (Reserved) Sec. NSSLAs shall not issue. The guidelines on market risk management for QBs as shown in Appendix Q-43 shall govern the market risk management of NSSLAs to the extent applicable. (Circular No. No. measure. Market risk should be reviewed together with other risks to determine overall risk profile. (Circular No. monitor and control risks. any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34. 7653. NSSLAs are expected to have an integrated approach to risk management to identify. of liquidity risk and are intended to provide more consistency in how the risk-focused supervision function is applied to this risk. As such. whenever applicable. 4199S General Provision on Sanctions. 36 and 37 of R. These guidelines are intended for general application.A. monitor and control risks. 545 dated 15 September 2006) (Circular No.12.§§ 4194S . measure. Manual of Regulations for Non-Bank Financial Institutions . NSSLAs are expected to have an integrated approach to risk management to identify. the guidelines are intended for general application. The guidelines set forth the expectations of the BSP with respect to the management S Regulations Part I . 544 dated 15 September 2006) Sec.Page 24 Secs. 4196S .31 to this risk. 35. The guidelines on liquidity risk management for QBs as shown in Appendix Q-44 shall govern the liquidity risk management of NSSLAs to the extent applicable.4198S (Reserved) Sec. Liquidity risk should be reviewed together with other risks to determine overall risk profile. Unless otherwise provided.4199S 06. 4195S Liquidity Risk Management. specific application will depend on the size and sophistication of a particular NSSLA and the nature and complexity of its activities. complexity and range of activities undertaken by NSSLAs. specific application will depend to some extent on the size. The BSP is aware of the increasing diversity of financial products and that industry techniques for measuring and managing market risk are continuously evolving. . Savings deposits are deposits evidenced by a passbook consisting of funds deposited to the credit of one (1) or more individuals with respect to which the depositor may withdraw anytime. NSSLAs may limit the number of withdrawals that a depositor may make: Provided. 4223S Withdrawals of Time Deposits. NSSLAs shall reserve the right to require the depositor to give prior written notice of withdrawal of not more than thirty (30) days. 4216S . 4206S Definition. Savings deposit shall be classified as dormant if no deposit or withdrawal has been made for the last two (2) years. Sec. Sec. A service charge to be determined by the board of trustees of the NSSLA and approved by the BSP.4240S (Reserved) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part II . 4208S Withdrawals. unless prior notice in writing of an intended withdrawal is required by the NSSLA.NSSLAs shall not require a minimum amount of time deposit greater than P1. C. 4202S . Minimum Size . TIME DEPOSITS Sec. Sec. 4231S . That the number of the withdrawals allowed shall not be less than three (3) times a month.§§ 4201S .4220S (Reserved) D.000. 4210S – 4215S (Reserved) Sec. or any credit to be withdrawn upon the presentation of any negotiable check or draft. 4224S . No NSSLA shall have or carry upon its books for any person any demand. DEMAND DEPOSITS Section 4201S Checking Accounts. Withdrawal from a savings deposit shall be made through the presentation to the NSSLA of a duly accomplished withdrawal slip together with the depositor’s passbook.No time deposit shall be accepted for a term of less than thirty (30) days. B.4230S (Reserved) E. b. SAVINGS DEPOSITS Secs.Page 1 .12. Term . the amount of which shall be approved by the BSP for the maintenance of dormant savings deposits. (RESERVED) Secs. commercial or checking account.F.4240S 05. 4209S Dormant Savings Deposits NSSLAs may charge a fee. Secs. Savings deposits with NSSLAs may be opened with a minimum deposit of P100. 4207S Minimum Deposit.31 PART TWO DEPOSIT AND BORROWING OPERATIONS A. 4222S Minimum Term and Size of Time Deposits a. 4221S (Reserved) Sec. The withdrawal of a time deposit can be made only by presentation of the certificate of time deposit on the day of or after its maturity. (RESERVED) Secs. Sec. Secs.4205S (Reserved) may be charged by the NSSLA for every withdrawal made in excess of the maximum number allowed in any one (1) month. except through. § 4261S.000 or more to the capital of the NSSLA may open deposit accounts with NSSLAs.3 Number of deposit accounts. A signature card bearing at least three (3) specimen signatures of each memberdepositor shall be required upon opening of a deposit account. and guardians for their wards. A savings deposit passbook. 4241S Interest on Savings Deposits Savings deposits of NSSLAs shall not be subject to any interest rate ceiling. § 4261S. § 4242S. § 4261S. bookkeeper and their assistants. The following are basic provisions on the opening and operation of deposit accounts of NSSLAs. and he may open and have various deposits in different capacities such as guardian. INTEREST ON DEPOSITS Sec.4250S (Reserved) deposit account for himself. shall be issued to the member- Manual of Regulations for Non-Bank Financial Institutions . although lacking capacity to contract. (RESERVED) § 4261S.31 G. or with the assistance of a guardian authorized to act for him. agent. provided he has sufficient discretion. Interest on time deposits may be paid at maturity or upon withdrawal or in advance: Provided.4 Signature card. A natural person. amount of deposit. a certificate of time deposit signed by two (2) authorized officers. his name and address.4261S. § 4242S. among other things.2 Identification of memberdepositors.2 Treatment of matured time deposits. 4261S Opening and Operation of Deposit Accounts. 4251S – 4260S (Reserved) I.5 Passbook and certificate of time deposit. may nevertheless open a savings or time S Regulations Part II . That interest paid in advance shall not exceed the interest for one (1) year. or trustee for others. NSSLAs shall be responsible for the proper identification of their member-depositors. However. Secs. In the case of a time deposit.§§ 4241S . signed by the receiving teller and an authorized officer. Only members who have contributed P1. however.1 Time of payment.4243S . the cashier. interest credits and balance. Sec.1 Who may open deposit accounts.Page 2 § 4261S. shall be issued to a member-depositor showing. Notwithstanding the provisions of the preceding paragraph. NSSLAs shall prenumber their savings deposit passbooks. 4242S Interest on Time Deposits Interest on time deposits shall not be subject to any interest rate ceiling. A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn an interest from maturity to the date of actual withdrawal or renewal at a rate applicable to savings deposits. date.12. account number. he cannot withdraw therefrom. Secs. and other employees of an NSSLA whose duties entail the handling of cash or checks are prohibited from opening savings deposit accounts with the head office or branch of the NSSLA in which they are assigned as such. A member-depositor may open and have more than one (1) savings deposit in his own name in the same capacity. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS Sec.5 05. Parents may deposit for their minor children. H. 31 depositor containing. 35. 36 and 37 of R.4299S 05. among other things. 4286S Borrowings. The Monetary Board may. whenever applicable. § 4261S. Manual of Regulations for Non-Bank Financial Institutions S Regulations Part II . in meritorious cases. amount of deposit. and from private banking institutions. 4281S . raise the ceiling on the borrowing capacity of an NSSLA to not more than thirty percent (30%) of its total assets. That the proceeds of such loan shall be used exclusively to meet the normal credit requirements of its members. 4299S General Provision on Sanctions.12. Checks and other cash items may be accepted for deposit by NSSLAs: Provided. Unless otherwise provided. date when the deposit was made. NSSLAs organized by employees of an entity or a corporation may borrow funds from said entity or corporation. An NSSLA may borrow money or incur such obligation up to not more than twenty percent (20%) of the total assets of the NSSLA.4298S (Reserved) Sec. Secs. 7653. its due date and interest rate. 4287S . from any public lending institution.6 Deposits in checks and other cash items. his name. (RESERVED) Secs.4285S (Reserved) K. OTHER BORROWINGS Sec.4280S (Reserved) J. No. and such private lending institutions as may be approved by the Monetary Board: Provided.Page 3 .§§ 4261S. 4262S . but not vice-versa.A.5 . That withdrawals from such deposits shall not be made until the check or other cash item is collected. any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34. Secs. NSSLAs shall not commit to make any loan for amounts in excess of the total of the following amounts: (1) Amount of cash available for loan purposes.12. The loan application and other required documents shall form part of credit information file of the member-borrower in the NSSLA. Credit investigation. c. An NSSLA shall maintain as far as practicable. however. b. For purposes of this Section.§§ 4301S .Page 1 . or up to seventy percent (70%) of the fair market value of any property acceptable as collateral on first mortgage that he may put up by way of security: Provided. Application. Loan Limits. LOANS IN GENERAL Section 4301S Authority. Sec. a. Maximum loan maturity. Loan limit to a single borrower. That this requirement may be waived by an NSSLA in the case of permanent employee or wage earner who is borrowing an amount not exceeding his deposit plus his twelve (12) months regular salary or retirement pension. regular income of persons who are self-employed shall be their average monthly income during the twelve (12)-month period immediately preceding the date of loan application.4302S 05. 4302S Basic Requirements in Granting Loans a. The board of trustees of NSSLAs shall prescribe their own rules and regulations governing credit operations of the NSSLAs within the framework of the terms and conditions embodied in this Section. b. That direct indebtedness to an NSSLA of any member-borrower for money borrowed with the exception of money borrowed against obligations of the BSP or of the Philippine Government. or borrowed with the full guarantee of the Philippine Government in the payment of principal and interest. Maturity of Loans. c. An NSSLA may grant loans not exceeding the amount deposited and/or contributed by the member-borrower plus his twelve (12) months salary or retirement pension from his employment. No loan granted by NSSLAs shall have a maturity date of more than five (5) years except loans on the security of unencumbered real estate for the purpose of home building and home development which may be granted with maturities not exceeding twenty-five (25) years and medium or long-term loans to finance agricultural projects. shall not exceed fifteen percent (15%) of the unimpaired capital and surplus of the NSSLA. Limitations on lending authority.31 PART THREE LOANS AND INVESTMENTS A. a credit information file which must contain. A member-borrower applying for a loan must submit an application stating the purpose of the loan and such other information as may be required by the NSSLA. (2) Amount of cash which can be readily realized upon the sale or redemption of permissible investments made by NSSLAs. among other things. and (3) Amount of credit available for loan purposes from government or private financing institutions. Credit information file/collateral file. No loan shall be approved unless prior investigation has been made to determine the credit standing of the applicant and/or the fair market value of the property offered as security and the report thereon shall be made part of the loan application: Provided. the member-borrower’s application and financial Manual of Regulations for Non-Bank Financial Institutions S Regulations Part III . A. member-borrowers open deposit accounts or make additional deposits to their existing accounts.31 record. For each loan granted by an NSSLA. In the absence of express contract. Sec.5 Interest accrual on past due loans. date granted. to make deductions from the salary. when allowable. § 4305S. shall also be maintained which must contain among other things. The following rules shall govern the rates of interest and other charges on loans granted by NSSLAs. NSSLAs shall not accrue interest income on loans which are already past due or on loan installments which are in arrears. 4304S Loan Repayment. Interest income on past due loan arising from discount amortization (and not Manual of Regulations for Non-Bank Financial Institutions . e. NSSLAs shall in no case require member-borrowers to deposit a portion of the loan proceeds. however. goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by the Monetary Board: Provided. income or retirement pension of the member-borrower in accordance with the terms of his loan. That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. further. due date. Interest on past due loans or loans installments in arrears shall be taken up as income only when actual payments thereon are received.4305S. §§ 4305S.§§ 4302S .3 Interest in the absence of contract. d.4 Escalation clause. That this prohibition shall not apply in cases of loans secured by a hold-out on deposits to the extent of the unencumbered amount of the deposit existing at the time of the filing of the above-mentioned loan application. whether in the form of savings or time deposits. the collateral and other documents pertinent to the loan.1 . § 4305S. a promissory note must be executed by the member-borrower in favor of the NSSLA expressing such particulars as the amount of the loan. wage. The treasurer. cashier or paymaster of the firm employing a member-borrower shall be required. Parties to an agreement pertaining to a loan or forbearance of money. Sec. no part of such new deposits shall be covered by a stipulation prohibiting or limiting withdrawal while new portion of their loans are outstanding: Provided. 8367.Page 2 authorized by the member-borrower.2 (Reserved) § 4305S. to remit such deductions to the NSSLA concerned and to collect such reasonable fee for his services as may be authorized by rules promulgated by the Monetary Board. Sec. and all other deductions S Regulations Part III . the rate of interest for the loan or forbearance of any money. subsequent to the release of the loan proceeds. No. In case of mortgage loans. Loans shall be approved by the NSSLA’s board of trustees or if approved by a body or officer/s duly authorized by the board. regardless of whether the loans are secured or unsecured. Inscription of lien. Loan agreements. f. pursuant to R. That such stipulations are valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided. interest rate and other similar information.12. 4305S Interest and Other Charges. goods or credit and the rate allowed in judgment shall be twelve percent (12%) per annum. where applicable. Where.5 05. 4303S Loan Proceeds. Loan approvals. Other information relative to the member-borrower.4305S. no release against an approved loan shall be made before the inscription of the mortgage. such loan must be confirmed by the board of trustees. and d. irrespective of the number of installments in arrears: Provided.3 05. whichever comes earlier. § 4306S. A second extension shall not exceed one-half (1/2) of the period of the first extension. To maximize the protection of members of NSSLAs against misfeasance and malfeasance of the trustees and officers thereof. however.3 Write-off of loans as bad debts. make a written demand within six (6) months following the grant of such loan. refer to all accounts which are not paid at maturity.000 or more. daily. including the interest thereon recorded in the books. (As amended by Circular No. That the modes of payment other than those listed above (e. That thirty percent (30%) of the loan shall have been paid. weekly or semi-monthly).12. The demand shall indicate a period of payment which shall not be later than six (6) months from date of said demand. NSSLAs shall. the entire total outstanding balance of the loan shall be considered as past due.2 Extension/renewal of loans Extension of the period of payment of loans may be allowed under the following circumstances: a.§§ 4305S.4306S. The term loan shall include all types of credit accommodations granted to. That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the loan. Writing-off of loans by an NSSLA shall be made not more than twice a year by its board of trustees. as a general rule. 494 dated 20 September 2005) Sec. b. § 4306S. and c. b. Past due accounts of an NSSLA shall. in accordance with the following schedules: Mode of Payment Installments in Arrears Monthly 6 or more Quarterly 2 or more Semestral 1 or more Annual 1 or more Provided. the extension shall not exceed one-half (1/2) of the original period: Provided. shall be written-off without the prior approval of: Manual of Regulations for Non-Bank Financial Institutions S Regulations Part III . That thirty percent (30%) of the loan shall have been paid. 4143S(d). Notice/application for write-off of loans shall be submitted. Loans payable in periodic installments may be renewed for the full amount of loans: Provided. the Monetary Board adopted the following regulations on writing-off of loans by NSSLAs.Page 3 . 4306S Past Due Accounts. as certified in said notice/application. the entire outstanding balance of the loan/receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total loan/receivable balance. A loan or receivable payable on demand not paid upon written demand as required herein or within one (1) year from date of grant or renewal. For production loans..1 Accounts considered past due.g. All items in litigation as defined in the Manual of Accounts for NSSLAs. Any due and unpaid loan installment or portion hereof. For consumer loans. That no such loans with an aggregate outstanding amount of P15. the extension shall not exceed one-half (1/2) of the original period: Provided.5 . and b. from the time the obligor defaults for the purpose of obligations as defined in Sec. The total outstanding balance of a loan or receivable payable in installments. The following shall be considered as past due: a. a. That at least thirty percent (30%) of the loan shall have been paid. c. further. and advances made by the NSSLA for the account of the borrowers/debtors. in case of non-payment of a demand loan. § 4306S. in the prescribed form to the appropriate department of the SES at least thirty (30) days prior to the intended date of write-off: Provided.31 from the contractual interest of the account) shall be accrued as provided in PAS 39. or other acquisition of. otherwise known as the “Truth in Lending Act. but shall not be limited to. it shall be the responsibility of the reporting NSSLAs to ensure that their disclosure of any information about their borrowers/clients is with the consent of borrowers concerned. either for present or future delivery. or other claim against. or the legal successor or representative of the foregoing. § 4307S. corporation.31 (1) The Monetary Board. Transactions covered (1) Any loan. c. mortgage. savings and loan associations. and includes the Philippine Government or any agency thereof. any contract to sell. 589 dated 18 December 2007) Sec. or any other government. or any agency of the foregoing. (2) Any conditional sales contract. or any organization performing similar functions. a. Transactions not covered Considering that the specific purpose of the law is the full disclosure of the true cost of credit. 4307S “Truth in Lending Act” Disclosure Requirements. under which.1 07. (Circular No. or any of its political subdivisions. NSSLAs are required to strictly adhere to the provisions of R.1 Definition of terms a. lien. b. property or money.4 Updating of information provided to credit information bureaus NSSLAs which have provided adverse information. or for delivery of. financing companies. advance and discount. The term creditor shall include. b. § 4306S. deed of trust. insurance and bonding companies.12. the payment of a finance charge. shall submit monthly reports to these bureaus or organizations on the full payment or settlement of the previously reported accounts within five (5) business days from the end of the month when such full payment was received. sale of bonds. and any other person or entity engaged in the business of extending credit who requires as an incident to the extension of credit. pledge. No. banks and banking institutions. in case of loans other than those mentioned in Item “(1)” above. S Regulations Part III . part or all of the price is payable subsequent to the making of such sale or contract. or any credit upon the security of any obligation or claim arising out of any of the foregoing.Page 4 (4) Any purchase. A. and (5) Any transaction or series of transactions having a similar purpose or effect. demand. Person means any individual. pawnshops. (3) Any option. or sale or contract of sale of property or services. NSSLA. partnership. lending investors.4307S. credit unions. etc. 3765. and (2) Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits.§§ 4306S. subject to confirmation by the Monetary Board. direct or indirect. real estate dealers. installment houses. insurance contracts. Creditor (who shall furnish the information) means any person engaged in a finance charge. Cash price or delivered price (in case of trade transactions) is the amount of money which would constitute full payment upon delivery of the property Manual of Regulations for Non-Bank Financial Institutions . the following categories of credit transactions are outside the scope of the above regulations: (1) Credit transactions which do not involve the payment of any finance charge by the debtor. in case of loans to trustees and officers of the NSSLA. or (2) The head of the appropriate department of the SES.3 .” and shall make the true and effective cost of borrowing an integral part of every loan contract. For this purpose. or other organized group of persons. to credit information bureaus. such as the past due or litigation status of loan accounts. the number of months in a year. be indicated in the credit contract. i. Non-finance charges correspond to the amounts advanced by the creditor for items normally associated with the ownership of the property or of the availment of the service purchased which are not incident to the extension of credit. where installment payments of equal amount are made in regular time periods spaced not more than one (1) year apart. the annual rate to be disclosed in writing shall be the rate for regular payments. however. given at the time of the transaction in partial payment for the property or service purchased. e.e. Amount to be financed consists of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in. For example.2 Information to be disclosed NSSLAs shall furnish to each person to whom credit is extended.. by the number or fraction of months between installment payments. In the case of single payment upon maturity.4307S.2 05. the timelines of the debtor’s payments. and (ii) the sum of the cash price and non-finance charges. Simple annual rate is the uniform percentage which represents the ratio.12. on an annual basis. 1 Manual of Regulations for Non-Bank Financial Institutions S Regulations Part III . as if the credit matures in one (1) year. Finance charge represents the amount to be paid by the debtor incident to the extension of credit such as interest or discounts. The total finance charge represents the difference between (i) the aggregate consideration (down payment plus installments) on the part of the debtor. net of finance charges collected at the time the credit is extended (if any). the simple annual rate (R) in percent is determined by the following method: R = finance charge amount to x be financed 12 maturity period x 100 in months In the case of the normal installment type of credit of at least one (1) year in duration. d. h. as defined in the credit contract. of payments finance charge in a year R = 2 x amount to x total number x 100 be financed of payments plus one In cases where the credit matures in less than one (1) year [e. g. attorney’s fees. Such premium or penalty charges shall. R in percent is computed by the following method: No. cash price represents the amount of money received by the debtor upon consummation of the credit transaction. say. § 4307S. between the finance charges and the amount to be financed.1 . the same formula will apply except that the number of payments in a year would refer to the number of installment periods. agreed upon by the creditor and debtor. the number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction1.31 (except money) or service purchased at the creditor’s place of business.g. Down payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased. Trade-in represents the value of an asset. For example.. prior to the This can be determined by dividing twelve (12). i. f. the creditor may advance the insurance premium as well as the registration fee for the account of the debtor. In cases where credit terms provide for premium or penalty charges depending on. In the case of financial transactions. in the case of the purchase of an automobile on credit. collection fees. the premium and penalty need not be taken into account in the determination of the annual rate.§§ 4307S.Page 5 . credit investigation fees. and other service charges. installment payments are required every month for six (6) months]. 000 nor more than P5. the NSSLAs shall be liable for reasonable attorney’s fees and court costs as determined by the court. to be credited as down payment and/or trade-in. whichever is the greater. Except as specified in Item “a” above. The finance charges expressed in terms of pesos and centavos.3 Inspection of contracts covering credit transactions. The amounts. e. long. The contract covering the credit transaction. which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit. c.4 Posters. § 4307S.000 or imprisonment for not less than six (6) months.12. a.A. The difference between the amounts set forth under Items “a” and “b”. The charges. d. No. NSSLAs shall keep in their office or place of business copies of contracts covering all credit transactions entered into by them which involve the extension of credit to another and the S Regulations Part III .5 05. § 4307S. A copy of the disclosure statement shall be furnished the borrower. 3765 (Appendix S-5) shall be reproduced in a format which is sixty (60) cm.§§ 4307S. No punishment or penalty provided by this Section shall apply to the Philippine Government or any agency or any political subdivision thereof. or any other document to be acknowledged and signed by the debtor. Action to recover such penalty may be brought by such person within one (1) year from the date of the occurrence of the violation. In any action under this Subsection in which any person is entitled to a recovery.31 consummation of the transaction. c. and posted on a conspicuous place in the NSSLAs’ place(s) of business. which will be collected in case certain stipulations in the contract are not met by the debtor. b.000 on any credit transaction. individually itemized. In addition. nothing contained in this rule shall affect the validity or enforceability of any contract or transaction.4307S. if any. NSSLAs which in connection with any credit transaction fail to disclose to any person any information in violation of this Section or any regulation issued hereafter shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such NSSLAs in connection with such transactions. The cash price or delivered price of the property or service to be acquired. wide and seventy-five (75) cm. except that such liability shall not exceed P2. f. a clear statement in writing setting forth the following information to be disclosed. and g. Manual of Regulations for Non-Bank Financial Institutions . shall indicate the above seven (7) items of information. Any person who willfully violates any provision of this Section or regulation issued hereafter shall be fined by not less than P1. An abstract of R. nor more than one (1) year or both. in any court of competent jurisdiction. the contract or document shall specify additional charges.Page 6 payment of finance charges therefor. said items to the extent applicable. The percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. to be signed by the debtor and appended to the main contract.2 . b. d.5 Penal provisions a. § 4307S. Such copies shall be available for inspection or examination by the appropriate department of the SES. if any. In case the seven (7) items of information mentioned in this Subsection are not disclosed in the contract covering the credit transaction. The total amount to be financed. shall be disclosed in another document in the form (Appendix S-4) prescribed by the Monetary Board. No NSSLA shall directly or indirectly make any loan to any trustee or officer of such NSSLA.4335S (Reserved) C. Reports.4355S (Reserved) E. In all cases of accommodations granted to trustees and officers under Sec. . 4308S – 4311S (Reserved) Sec. excluding the trustee concerned. That a certification shall be first secured from the office of the Registry of Deeds to the effect that the Land Transfer Certificate being presented is valid. 622 dated 16 September 2008) §§ 4312S. supplies or materials. b. 622 dated 16 September 2008) § 4312S. 4359S . Secs. Other securities as may be approved by the Monetary Board. d.4369S (Reserved) Sec.§§ 4308S . STOCKHOLDERS AND THEIR RELATED INTERESTS Sec. OFFICERS. (Deleted by Circular No. tools. excluding the trustee concerned: Provided.31 Secs. (RESERVED) Secs. 4321S Kinds of Security. The transactions of all trustees or officers with the NSSLA shall not be under terms more favorable than those transacted with other members. 4312S Grant of Loans and Other Credit Accomodations.12. Ceilings. Secs. Land transfer certificates issued by the government to tenant farmers.2 . g.4 Signatories. 4336S . Pledge of bonds. (Deleted by Circular No. merchandise and other personal properties. and h. under the agrarian reform program to the extent of sixty percent (60%) of the value of the farm holdings: Provided.D. The office of any trustee or officer of an NSSLA who violates the provisions of these rules on accommodations granted to trustee and officers shall immediately become vacant Manual of Regulations for Non-Bank Financial Institutions S Regulations Part III . shall be entered upon the records of the NSSLA and a copy of such entry shall be transmitted forthwith to the appropriate department of the SES within twenty (20) business days from the date of approval. 622 dated 16 September 2008) Secs.3 (Reserved) § 4312S. SECURED LOANS Sec.4312S. 4313S – 4320S (Reserved) B. 4357S. except with the written approval of the majority of the trustees of the NSSLA. stocks or securities which are non-speculative in nature. Assignment of quedans which gives the right of disposal of readily marketable products. LOANS/CREDIT ACCOMMODATIONS TO TRUSTEES. stock and other securities of the GOCC and other bonds. 4357S Direct/Indirect Borrowings. 4358S Records. the written approval of the majority of the trustees of the NSSLA. Time and/or savings deposits and/or capital contribution. Mortgages on registered real estate. 4356S General Policy. That the aggregate loans to such trustees and officers shall not exceed twenty percent (20%) of the total capital contributions of the NSSLA. f. Chattel mortgages on livestock. e. (Deleted by Circular No.1 General guidelines. Chattel mortgages on harvested or stored crops of non-perishable character.Page 7 . either for himself or as agent or as partner of another. 4322S . 4370S Sanctions. Sec. Sec. Loans by an NSSLA may be secured by any or all of the following: a. equipment or machinery. c.4370S 08. (2) The investment in any one (1) corporation (excluding the Government of the Philippines. 4396S . Unless otherwise provided. or corporations including GOCCs). 8367.000 pursuant to Section 15 of R.000/banking day to be imposed on NSSLAs for each violation. in amount not exceeding at any one time ten percent (10%).I. 476 dated 16 February 2005 as amended by Circular Nos. 36 and 37 of R.12. In bonds and securities in an aggregate amount not exceeding ten percent (10%) of its total assets. MISCELLANEOUS PROVISIONS Secs. and (3) The additional investment may be up to another ten percent (10%) of the NSSLA’s total assets. bonds and securities issued by the Government of the Philippines or any of its political subsidiaries. valuation.4395S (Reserved) K. That NSSLAs may invest available funds in excess of ten percent (10%) of total assets in sound non-speculative enterprise. 628 dated 31 October 2008 and 626 dated 23 October 2008) §§ 4391S. and c.3 Investments in debt and marketable equity securities. b.4399S 08. Fines of P2. . particularly in readily marketable and high grade commercial papers.4398S (Reserved) Sec.10 (Reserved) Secs. Sanctions to be imposed on concerned officers: (1) First offense – reprimand the officers responsible for the violation. In real property. in an aggregate amount not exceeding at any one time five percent (5%) of the total assets of such NSSLA. any of its political subdivisions. 35. subject to the following conditions: (1) The credit needs of the members shall be served/satisfied first. In furniture. 4399S General Provision on Sanctions. shall not exceed twenty-five percent (25%) of the NSSLA’s combined capital accounts.4 . 4391S Fund Investments. No. and (2) Subsequent offenses–suspensionof ninety (90) days without pay for officers responsible for the violation.A. of its total capital contribution.A. §§ 4391S.Page 8 improvements for its offices.2 (Reserved) § 4391S. No.§§ 4370S . F. An NSSLA may invest its funds in any or all of the following: a. OTHER OPERATIONS Sec. The following penalties and sanctions shall be imposed on FIs and concerned officers found to violate the provisions of these regulations: a.000 nor more than P50. whenever applicable. sales and transfers of investments in debt securities and marketable equity securities shall be in accordance with the guidelines in Appendices Q-20 and Q-20-a. instrumentalities. Penalties and sanctions. any investment in excess of ten percent (10%) shall require the prior approval of the BSP: Provided. 4392S . any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34. (RESERVED) Secs. 4371S . accounting procedures. and b. and leasehold S Regulations Part III . reckoned from the date the violation was committed up to the date it was corrected.1 . fixtures. 7653. instrumentalities or corporations including GOCCs.4390S (Reserved) J. (Circular No.31 and said trustees or officer shall be punished by imprisonment of not more than one (1) year nor more than ten (10) years and by a fine of not less than P5. furnishings and equipment.4391S.4391S. The classification. Manual of Regulations for Non-Bank Financial Institutions . 12.§§ 4401S .Page 1 .31 PART FOUR Sections 4401S .4499S (Reserved) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part IV .4499S 05. 31 PART FIVE Sections 4501S .§§ 4501S .Page 1 .12.4599S 05.4599S (Reserved) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part V . c.§§ 4601S . They shall be penalized on a per calendar day basis from the time the acts were committed/omitted or the transactions were effected up to the time they were corrected/rectified. Monetary Board directives. That the same is filed with the appropriate department of the SES within fifteen (15) calendar days from receipt of the Statement of Account/ billing letter. their trustees and/or officers and the payment of such penalties or fines and other charges by NSSLAs. The following are the guidelines on the imposition of monetary penalties on NSSLAs. d. Definition of terms. Appeal or request for reconsideration. Additional charge for late payment of monetary penalty.4601S. They shall be meted with one (1)-time monetary penalty on a per transaction basis. in violation of laws. their trustees and/or officers and the payment of such penalties or fines and other charges by NSSLAs: a. omissions or transactions entered into. For purposes of the imposition of monetary penalties. Payment of penalties or fines. Late payment of monetary penalty shall be subject to an additional charge of six percent (6%) per annum to be computed from the time said penalty becomes due and payable up to the time of actual payment. OTHER OPERATIONS Sec. BSP rules and regulations. BSP rules and regulations. (As amended by Circular No. A one (1)-time appeal or request for reconsideration on the monetary penalty approved by the Governor/ Monetary Board to be imposed on the NSSLA. “per business day”.12. 4601S Fines and Other Charges. b. The computation of the period or duration of all penalties shall be based on calendar days. (2) Transactional offenses/violations are acts. its directors and/or officers shall be allowed: Provided. “per day” and/or “a day” as used in this Manual.Page 1 .31 PART SIX MISCELLANEOUS A. and other BSP rules and regulations shall mean “per calendar day” and/or “calendar day” as the case may be. For this purpose the terms “per banking day”. Monetary Board directives. The following regulations shall govern imposition of monetary penalties on NSSLAs. The appropriate department of Manual of Regulations for Non-Bank Financial Institutions S Regulations Part VI . and orders of the Governor which persist from the time the particular acts were committed or omitted or the transactions were entered into until the same were corrected/rectified by subsequent acts or transactions. and orders of the Governor which cannot be corrected/rectified by subsequent acts or transactions.1 07.1 Guidelines on the imposition of monetary penalties. (4) Transactional penalty refers to a one (1)-time penalty imposed on a transactional offense/violation. omissions or transactions entered into in violation of laws. (3) Continuing penalty refers to the monetary penalty imposed on continuing offenses/violations on a per calendar day basis reckoned from the time the offense/ violation occurred or was committed until the same was corrected/rectified. Basis for the computation of the period or duration of penalty. 585 dated 15 October 2007) § 4601S. the following definitions are adopted: (1) Continuing offenses/violations are acts. No. 4631S Revocation/Suspension of NSSLA License. The running of the penalty period in case of continuing penalty and/or the period for computing additional charge shall be interrupted from the time the appeal or request for reconsideration was received by the appropriate department of the SES up to the time that the notice of the Monetary Board decision was received by the NSSLA/ individual concerned. (2) When the NSSLA willfully violates any provision of R. In reference to Section 22 of R.and (2) Paid-up capital is impaired by continuing losses for the last two (2) fiscal years. 8367. based on any of the following grounds: a. 585 dated 15 October 2007) S Regulations Part VI .31 the SES shall evaluate the appeal or request for reconsideration of the NSSLA/individual and make recommendations thereon within thirty (30) calendar days from receipt thereof. 4602S . upon due notice and hearing.) of any of the provisions of R. said penalty shall already be subject to an additional charge of six percent (6%) per annum to be reckoned from the business day immediately following the end of said fifteen (15)-day period up to the day of actual payment. (5) When it has insufficient realizable assets. make an NSSLA. The appeal or request for reconsideration on the monetary penalty approved by the Governor/Monetary Board shall be elevated to the Monetary Board for resolution/decision. No. to meet its liabilities. penalties which remain unpaid after the lapse of the fifteen-day period shall be automatically debited against their corresponding DDA on the following business day without additional charge. or BSP directives and/ or instructions. Failure to settle the full amount of the fines within the period or on the day prescribed herein shall. (4) When it is unable to pay its liabilities as they become due in the ordinary course of business. 8367 or the "Revised Non-Stock Savings and Loan Association Act of 1997". b. (As amended by Circular No. its trustees and officers liable to the sanctions imposed under Sec. and (7) When it has willfully violated a cease and desist order of the Monetary Manual of Regulations for Non-Bank Financial Institutions .Page 2 Secs. regular or special. If the balance of the concerned NSSLA’s DDA is insufficient to cover the amount of the penalty. and/ or any rules or regulations promulgated to implement said law. Revocation of license: (1) When the solvency of the NSSLA is imperiled by losses and irregularities. any rule or regulation promulgated to implement said law and BSP directives and/or instructions. its directors and/or officers shall become due and payable fifteen (15) calendar days from receipt of the Statement of Account from the BSP. (6) When it cannot continue in business without involving probable losses to its members or creditors. Suspension of license: (1) Repeated violations (uncorrected similar examination findings for the last two examinations. in addition to the additional penalty as provided in Item “c” above. payment of penalty or fines by NSSLAs. (3) When the NSSLA is conducting business in an unsafe and unsound manner. Due date.A. No. The penalty approved by the Governor/MB to be imposed on the NSSLA.4630S (Reserved) Sec. 8367.A. as determined by the BSP. 4199S.A.§§ 4601S. e. the Monetary Board.12.4631S 07. For NSSLAs which maintain DDA with the BSP.1 . Lifting of the suspension of license shall be approved by the Monetary Board upon recommendation of the appropriate BSP supervising department. has the authority to either revoke or suspend the license of any NSSLA for such period as it deems necessary. the NSSLA is prohibited from engaging in the business of accumulating the savings of its members and using such accumulations for loans to its members. the payments of its debts and distribution of its assets among the members or stakeholders or other persons involved. Any official or employee of NSSLAs who violates this Section shall be punished under R. A.Page 3 .4653S 05. the head of the appropriate department of the SES may furnish findings of examination to the office or firm where such NSSLAs do business. After the cessation of its operations due to revocation of its license. The board of trustees of the corporation also has the option of adopting a plan for the distribution of its assets. 4652S Confidential Information No trustee. Sec. inquired or looked into by any person. except in cases mentioned in the preceding paragraph. In the event that the board of trustees refuses to effectuate such dissolution.12. bureau or office. administration and financial condition of NSSLAs. or in cases of impeachment. 4651S Notice of Dissolution NSSLAs contemplating to dissolve shall give written notice thereof to the Monetary Board through the appropriate department of the SES at least thirty (30) days before taking steps to effect dissolution. subject to applicable sanctions and penalties provided by law in case of violation thereof. and the winding up its affairs. at least. 1405. or upon order of competent court in cases of bribery or dereliction of duty of public officials or in cases where the money deposited or invested is the subject matter of litigation. 4653S Examination by the BSP. inspection or investigation of the books and records. The head of the appropriate department of the SES. the Monetary Board may refer the matter to the Solicitor General for the filing of a quo warranto case against the corporation in accordance with the provision under the Corporation Code. as stated under Section 95 of the Corporation Code. the NSSLA should proceed with its dissolution. the Monetary Board may direct the board of trustees of the NSSLA to proceed with the voluntary dissolution of the corporation. Secs. an examination. officer or employee of NSSLAs or of the BSP shall disclose any information relating to member-borrowers and their applications or to the operations of the NSSLAs unless permitted by the Monetary Board of the BSP: Provided. No. business affairs.§§ 4631S . and may not be examined. however. All deposits of whatever nature with NSSLAs are considered absolutely confidential in nature. Sec.4650S (Reserved) B. SUNDRY PROVISIONS Sec. Manual of Regulations for Non-Bank Financial Institutions S Regulations Part VI . As to the effects of the revocation/ suspension of license of the NSSLA. in accordance with the provisions under the Corporation Code. as far as the right to go on doing ordinary business is concerned. as amended.31 Board involving acts or transactions which amount to fraud or a dissipation of assets of the institution. shall make at least once a year and at such other times as he or the Monetary Board may deem necessary and expedient. That in the case of NSSLAs under examination. The dissolution of a corporation involves the termination of its corporate existence. No official or employee of NSSLAs shall disclose to any person any information concerning said deposits. except upon written permission of the depositor. personally or by deputy. 4632S . government official. After the revocation/suspension of its license. ROPA reclassified either as Real Property-Land or Real Property-Building shall be booked at their ROPA balance. insofar as they are applicable and not inconsistent with these rules shall apply to NSSLAs. furniture.9 Batas Pambansa Blg. Institutions. repair or renovation of public and private buildings for public use. payable within thirty (30) days from receipt of the bill. The prescribed rate of annual fees for NSSLAs. shall first secure prior BSP approval before effecting the reclassification and shall submit.Page 4 §4657S.000 whichever is lower. Average Assessable Assets (AAAs) shall be the summation of end-of-quarter total assessable assets divided by the number of quarters in operation during the particular assessment period. sports and recreation centers and Manual of Regulations for Non-Bank Financial Institutions .” (Circular No. 494 dated 20 September 2005) Sec.8 (Reserved) § 4657S. 344 – An Act to Enhance the Mobility of Disabled Persons by Requiring Certain Buildings. The following rules shall govern the premises and other fixed assets of NSSLAs. including the BSP and banks abroad}. assessable only when actual examination is conducted for the year. For purposes of computing the annual fees chargeable against NSSLAs.A. the term Total Assessable Assets shall be the amount referred to as the total assets under Section 28 of R.A. known as the “Revised Non-Stock Savings and Loan Association Act of 1997”. NSSLA premises. 4654S Applicability of Other Rules Other rules and regulations applicable to the examination of thrift banks. Sec. No. NSSLAs. as amended.12.3 Reclassification of real and other properties acquired as NSSLA premises.1 Accounting for NSSLAs premises. S Regulations Part VI . §§ 4657S. airports.4 . in case of future use. no license or permit for the construction. That only such acquired asset or a portion thereof that will be immediately used or earmarked for future use may be reclassified and booked as Real PropertyLand/Building.4657S. Plant and Equipment. Sec.9 06. 4655S Annual Fees on Non-Stock Savings and Loan Association.31 Sec. In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they live and the enjoyment of the opportunities available to other citizens. No. 8367. net of any valuation reserves: Provided. 4657S NSSLA Premises and Other Fixed Assets. 7653 {end-of-quarter total assets per balance sheet. shall be one-fortieth of one percent (1/40 of 1%) of AAAs for 2002 or P100.2 (Reserved) § 4657S. Establishments and Public Utilities to Install Facilities and Other Devices.§§ 4654S . 4656S Basic Law Governing NonStock Savings and Loan Associations R. §4657S. regulates the organization and operation of NSSLAs.4657S. Other fixed assets. educational institutions. after deducting cash on hand and amounts due from banks. fixture and equipment shall be accounted for using the cost model under PAS 16 “Property. Failure to pay the bill within the prescribed period shall subject the NSSLAs to administrative sanctions. justification and plans for expansion/use. prior to the reclassification of their ROPA accounts to Real PropertyLand/Building. 9 . Towards this end. establishment or public utility. or public utilities may be renovated or altered to enable the disabled persons to have access to them. 9160. shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building. ramps. as defined herein: a. consistent with sound practices. as amended. 4661S .g. Transfer/remittance fee – charge for processing/sending the remittance from the country of origin to the country of destination and/or charge for receiving the remittance at the country of destination. surcharges. establishments. b. pawnshops. No. and g. (As amended by Circular No. QBs. d. Exchange rate differential/spread – foreign exchange mark-up or the difference between the prevailing BSP reference/guiding rate and the exchange/ conversion rate. f.4659 (Reserved) Sec. text message or telegram. NSSLAs.4690S (Reserved) Sec. public utilities. and all other institutions. If feasible. Amount/currency paid out in the recipient country . including their subsidiaries and affiliates supervised and/or regulated by the BSP. OBUs. e.31 complexes. (Circular No. trust entities.8 (Reserved) Manual of Regulations for Non-Bank Financial Institutions S Regulations Part VI . public parking places. Other currency conversion charges commissions or service fees. Exchange rate – rate of conversion from foreign currency to local currency.4691S. enhancing access to formal remittance channels in the source and destination countries. Secs.g. such architectural facilities or structural features as shall reasonably enhance the mobility of disabled persons such as sidewalks. the following minimum items of information regarding remittance transactions.8 08. postage. hours or minutes. providing overseas remittance services shall disclose to the remittance sender and to the recipient/beneficiary.1 .. 4660S Disclosure of Remittance Charges and Other Relevant Information It is the policy of the BSP to promote the efficient delivery of competitively-priced remittance services by banks and other remittance service providers by promoting competition and the use of innovative payment systems. NBFIs under BSP supervision. deepening the financial literacy of consumers.A.§§ 4657S. strengthening the financial infrastructure. e. shopping centers or establishments. Other related charges – e. workplaces. railings and the like. all such existing buildings.4691S. 4691S Anti-Money Laundering Regulations. institutions.Page 5 .12.exact amount of money the recipient should receive in local currency or foreign currency. Banks. peso-dollar rate. otherwise known as the “Anti-Money Laundering Act of 2001” and its Revised IRRs in Appendix S-7 and those in Appendix S-6.delivery period of remittance to beneficiary stated in number of days. 612 dated 13 June 2008) §§ 4691S. otherwise known as “covered institutions” shall comply with the provisions of R.. c. 4658S . 534 dated 26 June 2006) Secs. if any. including FXDs/MCs and RAs. Delivery time to recipients/ beneficiaries . and improving transparency in remittance transactions. Non-bank remittance service providers shall likewise post said information in their respective websites and display them prominently in conspicuous places within their premises and/or remittance/ service centers. b. c. NSSLAs shall require their clients to submit a clear copy of one (1) valid ID on a one-time basis only. 4695S Valid Identification (ID) Cards for Financial Transactions. and (t) Company IDs issued by private entities or institutions registered with or supervised or regulated either by the BSP. the administrative sanctions provided under Section 37 of R.4694S (Reserved) Sec. impose upon any covered institution. particularly those residing in the remote areas. Without prejudice to the criminal sanctions prescribed above against the culpable persons. or at the commencement of a business relationship. S Regulations Part VI . b. 7653. Valid IDs include the following: (a) Passport (b) Driver’s license (c) PRC ID (d) NBI clearance (e) Police clearance (f) Postal ID (g) Voter’s ID (h) Barangay certification (i) GSIS e-Card (j) SSS card (k) Senior Citizen card (l) OWWA ID (m) OFW ID (n) Seaman’s Book (o) Alien Certification of Registration/ Immigrant Certificate of Registration (p) Government office and GOCC ID (e. Secs. in order to promote access of Filipinos to services offered by formal FIs.A. Whenever a covered institution violates the provisions of Section 9 of R.A. the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50. its directors and/or officers for any violation of Section 9 of R. as well as to encourage and facilitate remittances of OFWs through the banking system: a.31 § 4691S. 7653.A. They shall require their clients to submit an updated photo and other relevant information whenever the need for it arises. the term official authority shall refer to any of the following: (1) Government of the Republic of the Philippines. the Monetary Board may. as amended. or both.000 nor more than P200.9 ..000 or by imprisonment of not less than two (2) years nor more than ten (10) years. at the discretion of the court pursuant to Section 36 of R. including financial transactions involving OFWs. 4692S . 9160. 9160. HDMF IDs) (q) Certification from the NCWDP (r) DSWD certification (s) IBP ID. No. as amended. No. AFP. No.12. The following guidelines govern the acceptance of valid ID cards for all types of financial transactions by NSSLAs.9 Sanctions and penalties a. or of this Section. No.Page 6 (2) Its political subdivisions and instrumentalities. otherwise known as “The New Central Bank Act”.§§ 4691S. (3) GOCCs. Students who are beneficiaries of remittances/fund transfers who are not yet of voting age may be allowed to present the original and submit a clear copy of one (1) valid photo-bearing school ID duly signed by the principal or head of the school.4695S 08. at its discretion. For this purpose. SEC or IC.A. and (4) Private entities or institutions registered with or supervised or regulated either by the BSP or SEC or IC. C l i e n t s w h o e n g a g e i n a financial transaction with covered institutions for the first time shall be required to present the original and submit a clear copy of at least one (1) valid photo-bearing ID document issued by an official authority.g. Manual of Regulations for Non-Bank Financial Institutions . financial transactions may include remittances.31 The foregoing shall be in addition to the customer identification requirements under Rule 9. 35.A. 564 dated 03 April 2007 as amended by Circular No. Under the Anti-Money Laundering Act of 2001. 4696S . It also includes any movement of funds by any means with a covered institution.4699S 08. a financial transaction is any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. Unless otherwise provided. 36 and 37 of R.c of the Revised IRRs of R. A.Page 7 . 4699S General Provision on Sanctions.1. as amended (Appendix S-7) For purposes of this Section. No. as falling under the definition of transaction. 7653. any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34. as amended. 608 dated 20 May 2008) Secs.§§ 4695S . Manual of Regulations for Non-Bank Financial Institutions S Regulations Part VI . No. whenever applicable. (Circular No.12. among others. 9160.4698S (Reserved) Sec. 2. b.” Therefore. All COCIs received by a teller should be stamped as “non-negotiable. the teller shall immediately make a cash turn-over of. be an agreement with the association’s depository banks whereby they will accept for deposit only to the account of the association the COCI previously stamped by the tellers as “nonnegotiable. From the moment that a check is received up to the moment that it is deposited to the account of the association with one of its depository banks. 4145S) 1. All cash in excess of the maximum amount determined by the association shall be turned over to the cashier.” The stamping should be made diagonally on the face of the check. Thus. all checks that are received by the tellers lose their further negotiability. S-1 05. Cash.12. As an added precautionary measure. however. When deposits received by a teller will increase his cash in excess of the maximum limit. it will not be accepted for encashment. Thus. the employee charged with the duty to stamp and who failed to do so. and only the association’s depository bank will accept them and solely for deposit to its account.APP. that check is just a piece of paper to be processed and recorded.Page 1 . although his transactions during the day may total more than the maximum limit. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-I . In view of the fact that all COCIs received by the tellers are stamped “non-negotiable” as detailed above. In cases. It will only reassume its negotiability upon its receipt by the association’s depository bank. the excess. however.31 SAFEGUARDS IN BONDING OF NSSLA ACCOUNTABLE OFFICERS AND EMPLOYEES (Appendix to Sec. where checks are received by mail. together with the manager/accountant/loan officer. the amount of money directly in his custody at any given time will never exceed the limit. There should. the COCIs clerk who records and processes these checks carries no accountabilities whatsoever. The COCIs Clerk. Checks and Other Cash Items (COCIs). The Teller. for the loss. the COCIs clerk shall be charged with the duty of stamping the checks as “non-negotiable. the manager/accountant/loan officer should check from time to time whether all COCIs received are stamped “non-negotiable. even in the remote possibility that someone presents a COCI stolen from the association to one of its depository banks.” 3. He should not be allowed to accumulate more than a specific maximum amount to be determined by the association but in no case to exceed P10.000 in cash at any given time while in the performance of his duties.” In the event that a COCI is not so stamped and it results in financial loss on the part of the association. at least. only the association and nobody else can further negotiate these checks. Thus. shall be held personally responsible. The procedures in this regard are as follows: a. Report Title Frequency Submission Deadline Submission Procedure on or before the end of the immediate following month Original to SDC As transaction occurs 10th business day from date of transaction/knowledge Original and duplicate Anti-Money Laundering Council (AMLC) -do- -do- -do- Consolidated Statement of Income and Expenses Quarterly on or before the end of the immediate following month Original to SDC Copy of entry in NSSLA records of written approval of majority of directors on credit accommodation to directors and officers with accompanying Certification on Loans Granted to Directors/Officers As approved 20th business day from date of approval Original .03. May 2002 as amended by Cir. 4162S) Category Form No.31 S Regulations Appendix S-2 .07) Consolidated Statement of Condition A-2 Unnumbered 4691S (Rev.Page 1 Quarterly A-2 . MOR Ref. No.08) Report on Suspicious Transactions A-2 Unnumbered 4691S Report on Covered Transactions A-3 BSP 7-26-03H 4162S (As amended by M-029 dated 09. S-2 08. 612 dated 06.07) A-3 BSP 7-26-18.ISD I BSP 7-26-02H 4162S (As amended by M-029 dated 09.1H 4358S APP.Manual of Regulations for Non-Bank Financial Institutions LIST OF REPORTS REQUIRED FROM NON-STOCK SAVINGS AND LOAN ASSOCIATIONS (Appendix to Sec.12.24.24. 4181S Original .28.07 and CL-059 dated 11. duplicate to SDC As crime/ incident occurs See Annex S-2-a for guidelines on reporting crimes and losses -do- As declared 10th business day after date of declaration -do- B BSP 7-26-20H 4162S Report on Crimes/Losses B BSP 7-26-25H 4126S Dividends Declaration Required of NSSLAs with total resources of P 10 million or more Not required where no change occurs APP.09. Unnumbered B B Manual of Regulations for Non-Bank Financial Institutions 1 2 BSP 7-26-01H MOR Ref.04.Page 2 Category .07) Report on Borrowings of BSP Personnel Quarterly 15th banking days after end of reference quarter Original to SDC 4172S Audited/Unaudited Financial Statements required in Sec. 4181S accompanied by annual report 1 (to members.Notarized first page of each of the directors'/officers' bio-data saved in diskette and control prooflist .31 S Regulations Appendix S-2 .08 Biographical Data of Directors/Officers .A-3 Form No.12.Notarized first page of Biographical Data or Notarized list of names of Directors/Officers whose Biographical Data were submitted thru electronic mail to be faxed to SDC (CL dated 01.01) After2 election or appointment and as changes occur 7th baking day from the date of the meeting of the board of directors in which the directors/officers are elected or appointed Electronic mail or diskette form to SDC or if hard copy original to appropriate department of the SES.If sent by electronic mail . S-2 08.31. Report Title Frequency Submission Deadline Submission Procedure 4162S (CL-050 dated 10.ISD I 4162S Information Sheet Annually2 30th day after calendar year-end -do- 4162S SES II Form 15 (NP08TB) As amended by M-024 dated 07. if any) Annually 120th/60th day after end of fiscal year as required in Sec.If submitted in diskette form . S-2 08.31 S Regulations Appendix S-2 .000. Frequency Submission Deadline Submission Procedure B - 4126S Report of Discrepancies of Accounts Everytime a discrepancy occurs1 15th day from discovery of discrepancy B - 4306S.3 Notice/Application for Write-Off of Loans As write-off occurs 30th day prior to the intended date of write-off -do- B - 4162S.1 Board Resolution on NSSLA's signatories to reports submitted to Bangko Sentral As authorized 3rd day from date of resolution -do- B Unnumbered 4691S Plan of action to comply with Anti-Money Laundering requirements - 30th business day from 31 July 2000 or from opening of the institution -do- Certification of compliance with existing anti-money laundering regulations Annually 20th business day after end of reference year -do- As contract is signed 15th calendar day from date of signing of contract -do- Unnumbered 4691S (no prescribed form) 4162S Audit Engagement Contract Not required where the discrepancies do not exceed 1% of NSSLA's net worth or P100.12.Manual of Regulations for Non-Bank Financial Institutions Category Form No.Page 2a 1 Report Title . MOR Ref. whichever is lower (Next Page is Page 3) -do- APP. The following guidelines shall be observed in the preparation and submission of the report. a.31 Annex S-2-a REPORTING GUIDELINES ON CRIMES/LOSSES 1. b. even if the amount involved is less than those above specified. Crimes involving NSSLA personnel.000 or more.000 or more. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident.12. Security Investigation and Transport Department. an initial report submitted within the five (5)-business day deadline may be accepted: Provided. the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator.Page 3 . other than arising from a crime. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-2 . NSSLAs shall report on the following matters through the appropriate supervising and examining department: a. regardless of whether or not such crimes involve the loss/destruction of property of the NSSLA. shall likewise be reported to the BSP. swindling or estafa. theft. frustrated or attempted against property/ facilities (such as robbery. thru the Director. Crimes whether consummated.APP. forgery and other deceits) and other crimes involving loss/ destruction of property of the NSSLA when the amount involved in each crime is P20. when the amount involved per incident is P20. b. destruction or damage to the institution’s property/facilities. That a complete report is submitted not later than fifteen (15) business days from termination of investigation. Where a thorough investigation and evaluation of facts is necessary to complete the report. 2. S-2 05. Incidents involving material loss. with format as prescribed in Annex S-3-c.31 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION (Appendix to Subsec. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-3 .1) Category A-1 reports shall be signed by the chief executive officer. Categories A-3 and B reports shall be signed by officers or their alternates. who shall be duly designated by the board of directors. or in his absence. and by the comptroller.Page 1 . or in his absence. Such reports of other offices/units (such as branches) shall be signed by their respective Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) business days from the date of resolution. by the chief accountant. by the executive vice-president. Likewise. The designated signatories in this category. S-3 05. A copy of the board resolution. including their specimen signatures. Category A-2 reports of head offices shall be signed by the president. shall be contained in a resolution approved by the board of directors in the format prescribed in Annex S-3-a. 4162S. vice-presidents or officers holding equivalent positions.12.APP. managers/officers in-charge. the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex S-3-b. or by officers holding equivalent positions. executive vice-presidents. APP. S-3 05. in designating the officials who would sign said Category A-1 reports. Whereas. Executive Vice-President. or in his absence. it is required under Subsec. Mr. 4162S. Whereas. or by officers holding equivalent positions. this Board has full faith and confidence in the institution's Chief Executive Officer. or in his absence. we. by the Executive Vice-President. and. the members of the Board of Directors of (Name of Institution) .____________ and Comptroller 4. Mr. _________________________ CHAIRMAN OF THE BOARD ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ATTESTED BY: ______________________ CORPORATE SECRETARY S Regulations Appendix S-3 . resolve.____________ or Chief Accountant _________________ Specimen Signature _________________ Specimen Signature _________________ Specimen Signature _________________ Specimen Signature are hereby authorized to sign Category A-1 reports of (Name of Institution) .12. the members of the Board of Directors. Mr.____________ President 2. as the case may be. therefore. are conscious that. and by the Comptroller. Now. Comptroller and Chief Accountant. Whereas. this ____day of ____. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. as it is hereby resolved that: 1. 20____. we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general.31 Annex S-3-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS Resolution No. we. Mr. therefore. Done in the City of ________________ Philippines. _____ Whereas.Page 2 Manual of Regulations for Non-Bank Financial Institutions . it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors.____________ or Executive Vice-President 3.1 that Category A-1 reports be signed by the Chief Executive Officer. by the Chief Accountant. Now. Done in the City of ________________ Philippines.1 that Category A-2 reports of head offices be signed by the President. we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general.31 Annex S-3-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS Resolution No. Vice-Presidents or officers holding equivalent positions. _____ Whereas. this ____day of ____. we. _________________________ CHAIRMAN OF THE BOARD ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ATTESTED BY: ______________________ CORPORATE SECRETARY Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-3 . as it is hereby resolved that: Name of Officer Specimen Signature Position Title Report No. this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President. in designating the officials who would sign said Category A-2 reports. and that such reports of other offices be signed by the respective managers/officers-in-charge. Whereas. 20____. the members of the Board of Directors. 4162S. it is required under Subsec. therefore. we. the members of the Board of Directors of (Name of Institution) . Whereas. Whereas. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority.APP. etc. are conscious that. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors. _____________ ________________ __________ _________ are hereby authorized to sign the Category A-2 reports of (Name of Institution) .12.. S-3 05.Page 3 . resolve. therefore. as the case may be) and. Executive Vice-Presidents. 1 that Categories A-3 and B reports be signed by officers or their alternates. this Board has full faith and confidence in the institution's authorized signatories and. are hereby authorized to sign the Category A-2 reports of (Name of Institution) . as it is hereby resolved that: Name of Authorized Signatory/Alternate Specimen Signature Position Title Report 1. therefore. Authorized (Alternate) 2.Page 4 Manual of Regulations for Non-Bank Financial Institutions . we the members of the Board of Directors of (Name of Institution) . we are actually empowering and authorizing said officers to represent and act for or in (Name of Institution) in general. this ____day of ____.APP. therefore. are conscious that. Whereas. 4162S. behalf of the Board of Directors in particular and Whereas. 20____. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors. Now. it is required under Subsec. Done in the City of ________________ Philippines. resolve.12. we. Authorized (Alternate) etc. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. the members of the Board of Directors. in designating the officials who would sign said Categories A-3 and B reports. S-3 05. _________________________ CHAIRMAN OF THE BOARD ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ATTESTED BY: ______________________ CORPORATE SECRETARY S Regulations Appendix S-3 .31 Annex S-3-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS Resolution No. Whereas. _____ Whereas. 3765.31 FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (Appendix to Subsec.APP S-4 05.Page 1 . Taxes c. Documentary/Science Stamps e. Cash/Purchase Price ________________or Net Proceeds of Loan (Item Purchased) 2.12. Non-Finance Charges [Advanced by Seller/Creditor]: a. Amount to be Financed (Items 3 + 4) Manual of Regulations for Non-Bank Financial Institutions P S Regulations Appendix S-4 .2) ______________________________ (Business Name of Creditor) DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT OR INSTALLMENT PLAN) (As required under R. LESS: Downpayment and/or Trade-in Value (Not applicable for loan transaction) 3. Notarial Fees f. Truth in Lending Act) Name of Borrower Address P 1. 4307S.A. Others: ___________________ ___________________ ___________________ Total Non-Finance Charges 5. Registration Fees d. Insurance Premium P b. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan 4. e. d. f.31 6. g. c.a. Interest _______% p. Total Installment Payments (Payable in __________ weeks/months @ P__________) P P *Time price differential should be disclosed as a finance charge. Payment a.APP.12. Single Payment due ____________________ (Date) b. S Regulations Appendix S-4 . from ________ to ________ [ ] Simple [ ] Compound b.1) _______________% 8. S-4 05. Percentage of Finance Charges to Total Amount Financed (Computed in accordance with Subsec. Effective Interest Rate (Method of computation attached) _______________% 9. 4307S. h. If an itemization cannot be made. Finance Charges* a. [ [ [ [ P ] Monthly ] Quarterly ] Semi-Annual ] Annual Discounts Service/Handling Charges Collection Charges Credit Investigation Fees Appraisal Fees Attorney’s/Legal Fees Other charges incidental to the extension of credit (specify): _______________ _______________ _______________ Total Non-Finance Charges P 7. a lump-sum figure may be reported under Other charges incidental to the extension of credit in Item 6h.Page 2 Manual of Regulations for Non-Bank Financial Institutions . Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-4 .Page 3 .12. __________________________ (Signature of Buyer/Borrower Over Printed Name) DATE ____________________ NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN.31 10. Additional charges in case certain stipulations in the contract are not met by the debtor: Nature ____________________ ____________________ ____________________ ____________________ Rate ____________________ ____________________ ____________________ ____________________ Amount ____________________ ____________________ ____________________ ____________________ CERTIFIED CORRECT: _______________________ (Signature of Creditor/ Authorized Representative Over Printed Name) _________________________ Position I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF.APP S-4 05. Declaration of Policy. Approved. Any creditor shall furnish to each person to whom credit is extended.31 ABSTRACT OF “TRUTH IN LENDING ACT” (Republic Act No. 4307S. Sec. except that such liability shall not exceed P2. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction. which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit. xxx xxx xxx (d) Any final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto.000 nor more than P5. 3765) (Appendix to Subsec. service charges. and such other charges incident to the extension of credit as the Board may by regulation prescribe.4) Section 1. to be credited as down payment and/or trade-in. 7.000 or imprisonment for not less than 6 months nor more than one year or both. 6. (2) the amounts. 2. This Act shall become effective upon approval. prior to the consummation of the transaction a clear statement in writing setting forth. xxx xxx xxx Sec. (5) the total amount to be financed. whichever is the greater. to the extent applicable and in accordance with rules and regulations prescribed by the Board.” Sec. xxx xxx xxx Sec. individually itemized. 4.Page 1 . the term xxx xxx xxx (3) “Finance charge” includes interest. and (7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. xxx xxx xxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1. (3) the difference between the amounts set forth under clauses (1) and (2). fees. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-5 . 22 June 1963. As used in this Act. This Act shall be known as the “Truth in Lending Act.12. xxx xxx xxx Sec. (6) the finance charge expressed in terms of pesos and centavos.000 on any credit transaction. 3. It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. S-5 05. discounts. the following information: (1) the cash price or delivered price of the property or service to be acquired.APP. if any. (4) the charges. which are not expressly allowed under existing law.APP. whichever is earlier. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by the covered institutions should be renewed/ updated at least every other year. Covered institutions shall phase out within a period of one (1) year from 2 April 2001 or upon their maturity. address. a. The provisions of existing laws to the contrary notwithstanding. reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. They shall maintain a system of verifying the true identity of their clients and. anonymous accounts. S-6 05.Page 1 .12. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. and all other similar accounts shall be absolutely prohibited. Said client identification may be based on official or other reliable documents and records. trust entities and all other institutions. in case of corporate clients. accounts under fictitious names. Customer identification. In case where numbered accounts is allowed (i. the following measures should be taken. and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R. Covered institutions shall establish and record the true identity of its clients based on official documents. 9160 and the following rules and regulations on anti-money laundering. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both. b. as well as the authority and identification of all persons purporting to act on their behalf. proof of incorporation. accepting deposit substitutes. legal form. When establishing business relations or conducting transactions (particularly opening of deposit accounts. require a system of verifying their legal existence and organizational structure. directors. covered institutions should ensure that the client is identified in an official or other identifying documents.31 ANTI-MONEY LAUNDERING REGULATIONS (Appendix to Section 4691S) Banks. In cases of corporate and other legal entities. entering into trust and other fiduciary transactions. In case of doubt as to whether their purported clients or customers are acting for themselves or for another. renting of safety deposit boxes. d. e. performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients.. the records on customer Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-6 . The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts. including information concerning the customer’s name. quasi-banks. No. With respect to closed accounts. c. principal officers and provisions regulating the power behind the entity.A. 1. peso and foreign currency non-checking numbered accounts).e. anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them. 1 4. The background and purpose of such transactions should. especially if the wire transfers are effected through countries which are identified or connected with terrorist activities. (3) Unusual purchases of foreign exchange without visible lawful purpose. and c. These programs. which have no apparent or visible lawful purpose. without visible economic or business purpose. transacting business with criminals. (5) Complex. the transactions involving such funds or attempts to transact the same. 3.3 of the AMLA IRRs. Submission of plans of action Covered institutions shall submit a plan of action on how to comply with the requirements of App. (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities. Required reporting of certain transactions. unusual large transactions. auditors and law enforcement agencies. and all unusual patterns of transactions. S-6 05. 292 dated 11. including the designation of compliance officers at management level. g.2 and 5. Report on suspicious transactions. 9160 and/or its IRRs.12.2 and 5. An audit function to test the system. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. as far as possible. be examined. and be available to help supervisors. S-6 nos. Programs against money laundering should be developed. if necessary.31 identification. f. and all unusual patterns of transactions. a. Covered institutions should not.20. unusual large transactions. account files and business correspondence. b.APP. as a minimum: a.3 of the AMLA IRRs. The development of internal policies. Such records must be sufficient to permit reconstruction of individual transactions so as to provide. which have no apparent or visible lawful purpose. Amended by AMLC Resolution No. 2 and 4 within thirty (30) business days from 31 July 2000 or from opening of the institution.A. Programs against money laundering. or should at least avoid. should be reported to the AntiMoney Laundering Council (AMLC) in accordance with Rules 5. (2) Inward remittances without visible lawful purpose or without underlying trade transactions. as defined in Rules 5.1 Banks shall report covered transactions and suspicious transactions. evidence for prosecution of criminal behaviour. procedures and controls. (4) Unusual sales of foreign exchange whose sources are not satisfactorily established. Special attention should be given to all complex. 1. shall be preserved and safely stored for at least five (5) years from the dates when they were closed. the findings established in writing. to the AMLC using the forms prescribed by the AMLC. An ongoing employee training program. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose. No.03 (Annex S-6-b) S Regulations Appendix S-6 . (a) Wire transfers between accounts. and (7) Suspicious Transaction Indicators or “Red Flags” as a Guide in the Submission to the AMLC of Reports of Suspicious Transactions Relating To Potential or Actual Financing of Terrorism. If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R.Page 2 Manual of Regulations for Non-Bank Financial Institutions . and adequate screening procedures to ensure high standards when hiring employees. should include. 2. consultant or associate of the covered institution. shall be criminally liable. (n) A mismatch between the pattern and size of financial transactions on the one hand and the stated purpose and activity of the NGO on the other. No. companies or non-governmental organizations (NGOs) that are affiliated or related to people suspected of being connected to a terrorist group or a group that advocates violent overthrow of a government. 8791 and other similar laws. (c) Date or date the transaction(s) occurred. R. consultants or associates shall not be deemed to have violated R. representatives. shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith. advisors. (j) Transactions of individuals. (g) An individual receiving remittances. advisor.A. whether or not such reporting results in any Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-6 . identical or analogous to any of the foregoing. In case of violation thereof. No. (e) Client is conducting a transaction that is out of the ordinary for his known business interest. R. employee. to any person the fact that a covered transaction report was made.A. When reporting covered transactions to the AMLC. (p) Any other transaction that is similar. (i) Client is under investigation by law enforcement agencies for possible involvement in terrorist activities.A. S-6 05. (d) Amount(s) involved in every transaction. (k) Transactions of individuals. but has no family members working in the country from which the remittance is made. b. as amended. as amended. the concerned officer. Exemption from Bank Secrecy Law. (c) Repetitive deposits or withdrawals that cannot be explained or do not make sense. or any other information in relation thereto. (f) Deposits being made by individuals who have no known connection or relation with the account holder.APP. companies or NGOs that are suspected as being used to pay or receive funds from revolutionary taxes. no administrative. (8) All other suspicious transactions/ activities which can be reported without violating any law. (m) The absence of contributions from donors located within the country of origin of the NGO.Page 3 . 1405. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. (d) Value of the transaction is over and above what the client is capable of earning. employees. representative. 6426. No. directly or indirectly. in any manner or by any means. (l) The NGO does not appear to have expenses normally related to relief or humanitarian effort. covered institutions and their officers. but are prohibited from communicating. (e) Such other relevant information which can be of help to the authorities should there be an investigation.31 (b) Sources and/or beneficiaries of wire transfers are citizens of countries which are identified or connected with terrorist activities. criminal or civil proceedings. agent. However. (h) Client was reported and/or mentioned in the news to be involved in terrorist activities. (b) A brief description of the transaction or transactions.12. (o) Incongruities between apparent sources and amount of funds raised or moved by the NGO. agents. the contents thereof. directly or indirectly. Prohibition from disclosure of the covered transaction report. S-6 05. agent. representative. the fact that a covered transaction report was made. Neither may such reporting be published or aired in any manner or form by the mass media. the media. Certification of compliance with anti-money laundering regulations. or other similar devices. or media shall be held criminally liable. In case of violation thereof. the S Regulations Appendix S-6 . advisor. in any manner or by any means. consultants or associates are prohibited from communicating. Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification (Annex S-6-a) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations. When reporting covered transactions to the AMLC.31 criminal prosecution under R. representatives.12.APP. advisors. c. electronic mail.Page 4 concerned officer. employees. to any person. employee. No. agents. 9160 or any other Philippine law. The certification shall be submitted in accordance with Appendix S-2 and shall be considered a Category A-2 report. 5. consultant or associate of the covered institution. entity. covered institutions and their officers. the contents thereof. or any other information in relation thereto. Manual of Regulations for Non-Bank Financial Institutions .A. APP. 2.12. _________. That we have monitored (Name of NSSLA)’s compliance with R. _____ this ____ day of ____________. That the NSSLA is complying with the required customer identification.31 Annex S-6-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No. _________. 9160 (AntiMoney Laundering Act of 2001) as well as with BSP Circular Nos. 251. No Doc. Page No. Series of 20___ Manual of Regulations for Non-Bank Financial Institutions Date/Place Issued Notary Public S Regulations Appendix S-6 .Page 5 . That we conduct regular anti-money laundering training sessions for all NSSLA officers and selected staff members holding sensitive positions.A. No. 259 and 302. S-6 05. That the NSSLA does not maintain anonymous or fictitious accounts. Book No. and 5. 4. documentation of all new clients. _________. we hereby certify: 1. and continued monitoring of customer’s activities. affiant/s exhibiting to me their Residence Certificates as follows: Name Community Tax Cert. No. 279 dated 2 April 2001. 253. 3. That the NSSLA is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years. ________________________ (Name of President or officer of equivalent rank) _________________________ (Name of Compliance Officer) SUBSCRIBED AND SWORN to before me. SCCP and transfer agents are exempt from filing CTRs. as amended. retroactive to 05 January 2004. Under this rule. *a. through the Association of Bank Compliance Officers (ABCOMP). regardless of the mode of payment (monthly.Page 6 Manual of Regulations for Non-Bank Financial Institutions . and the bulk transactions do not distinguish clients and their respective transaction amounts. resolved to: (1) Defer reporting by covered institutions to AMLC of the following “non-cash. (2) Request the BSP-supervised institutions. in cash or non-cash. as the case may be. no/low risk” covered transactions. required to file STRs when the transactions that pass through them are deemed to be suspicious. All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property. Covered institutions. no/low risk covered transactions: · Transactions between banks and the BSP. 3. otherwise known as the “Anti-Money Laundering Act of 2001”. The Anti-Money Laundering Council (AMLC). whichever comes first. Banks shall file covered transaction reports (CTRs) on transactions involving all kinds of monetary instruments or property. such amount shall be reported as a covered transaction. said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500.12. i. PCD. · Internal operating expenses of the banks. The PSE. Due to the nature of the transactions in the stock exchange. The submission of CTRs is deferred until the AMLC directs otherwise. 9160. 2. other than banks. exceeds P500. With respect to insurance companies. b. when the total amount of the premiums for the entire year. Submission of STRs. and (2) Re-submit in required electronic form.. are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require. however. to determine and report to AMLC the specific transactions falling within the purview of the aforesaid BSP-identified categories on “non-cash.e. are however. in the required format. quarterly.e.31 Annex S-6-b AMLC Resolution No. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS* (Annex to Appendix S-6) 1.APP. They.. regardless of the mode of payment. · Transactions between banks and government agencies. 5. The CTR shall be filed upon payment of the first premium amount. even if the amounts of the amortizations are less than the threshold amount. Where the covered institution engages in bulk transactions with a bank. whether in domestic or foreign currency. and · Loan interest/principal payment debited against borrower’s deposit account maintained with the lending bank. · Roll-overs of placements of time deposits. deposits of premium payments in bulk or settlements of trade. · Transactions between banks operating in the Philippines. i. and its Revised Implementing Rules and Regulations. S Regulations Appendix S-6 .000 and are included in the bulk transactions. semi-annually or annually).000. only the brokers-dealers shall be required to file CTRs and STRs. retroactive to 23 March 2003. the insurance company shall file the CTR only once every year until the policy matures or rescinded. shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. 6. of those STRs previously submitted in hard copy or the hard copy version of those submitted only in electronic form. · Transactions involving transfer of funds from one deposit account to another deposit account of the same person within the same bank. those CTRs that have been submitted previously in hard copy or in diskette not in the required format. S-6 05. All covered institutions should: (1) Submit corresponding electronic copy versions. in the exercise of its authority under Sections 7(1) and 9 of Republic Act No. 4. quasi-bank. Declaration of Policy. holding companies. . 9194.These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA.A. 4691S) RULE 1 TITLE Rule 1. 9160. or as surety. the following terms are hereby defined as follows: Rule 3. whether life or non-life and whether domestic. No. No. trust entity. 9160”. Title. RULE 2 DECLARATION OF POLICY Rule 2. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss.b. the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. No.A. Purpose. non-stock savings and loan associations. .a. Definitions. trust entity or any other institution supervised or regulated by the BSP. Consistent with its foreign policy. AS AMENDED BY R.A. RULE 3 DEFINITIONS Rule 3.a.A. NO. as amended by R. domestically incorporated or branch of a foreign entity.12. 9194 (Appendix to Sec. – For purposes of this Act.It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity. quasi-banks.31 REVISED IMPLEMENTING RULES AND REGULATIONS R. doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . Rule 1. holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). Transacting insurance business includes making or proposing to make. including their subsidiaries and affiliates supervised and/ or regulated by the Bangko Sentral ng Pilipinas (BSP). offshore banking units. insurance brokers. and all other institutions. or any other institution supervised and/or regulated by the BSP. professional reinsurers. quasi-bank. Covered Institution refers to: Rule 3.a. any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety. damage or liability arising from an unknown or contingent event. S-7 05. Insurance companies.APP. as amended by R.Page 1 .2. trust entities. Banks. any insurance contract.These Rules shall be known and cited as the “Revised Rules and Regulations Implementing R. insurance agents. (the Anti-Money Laundering Act of 2001 [AMLA]).1. (a) An insurance company includes those entities authorized to transact insurance business in the Philippines.A. NO. (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank. Rule 3. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank. as insurer. 9194. reinsurance brokers. pawnshops.a. . 12. trading advisors. associated persons of brokers or dealers. money changers. Manual of Regulations for Non-Bank Financial Institutions . S Regulations Appendix S-7 . valuable objects. close-end investment companies. investment houses. (iii) foreign exchange corporations. (c) A securities salesman includes a natural person. cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). employed as such or as an agent. commodities or financial derivatives based thereon. and transfer companies and other similar entities. partnership. (e) A reinsurance broker includes any person who. brokers. for any insurance company authorized to do business in the Philippines.Page 2 Rule 3. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance.D. (ii) mutual funds or open-end investment companies. acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority. issuer or broker to buy and sell securities. on behalf of an insured other than himself. common trust funds. 612. employee or officer of an insurer in which any reinsurance is effected. A holding company system includes a holding company together with its controlled insurers and controlled persons. or an agent or a person whose functions are solely clerical or ministerial.APP. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. investment agents and consultants. domestically incorporated or a branch of a foreign entity. as amended.3. negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance. S-7 05. whether domestic. money payment. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. including securities of the Government and its instrumentalities. and other entities managing securities or rendering similar services. 612. as amended.D. pre-need companies or issuers and other similar entities. No. (c) An insurance broker includes any person who acts or aids in any manner in soliciting. but does not include a salesman. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.31 Presidential Decree (P.) No. not being a duly authorized agent. (i) Securities dealers.a. by a dealer. (d) A professional reinsurer includes any person. (e) An investment house includes an enterprise which engages or purports to engage. and (iv) other entities administering or otherwise dealing in currency. association or corporation that transacts solely and exclusively reinsurance business in the Philippines. whether regularly or on an isolated basis. salesmen. in the underwriting of securities of another person or enterprise. including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P. remittance. (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. accountant. or a grantor of a trust. pension. with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted. editor. (e) such other person not within the intent of this definition.31 (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan.APP. business or financial publication of general and regular circulation. A customer also includes the beneficiary of a trust. whether actual or prospective. It includes any insurance policy holder. a pension fund or a company or person whose assets are managed by an asset manager. news. either directly or through circulars. (g) A closed-end investment company includes an investment company other than open-end investment company. (b) any journalist. (i) A pre-need company or issuer includes any corporation supervised and/ or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. (d) any contract market. remit or transfer or transmit money on behalf of any person to another person. provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. reporter. which the Commission may.12. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need. approve. as well as the beneficiary of said transactions. in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. teacher. lawyer. from time to time. for the purpose of administration. publications or writings. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. education. (m) A money payment. issues or promulgates. including their employees. except: (a) any bank or trust company. sales or exchanges of securities. (n) “Customer” refers to any person or entity that keeps an account. remittance and transfer company includes any person offering to pay. (c) the publisher of any bonafide newspaper. S-7 05. or otherwise transacts business. (3) any person who undertakes the management of portfolio securities of investment companies. whether regularly or on an isolated basis. including the arrangement of purchases. holding or management of such funds and/or properties for the use. an investment fund. any redeemable security of which it is the issuer. benefit or advantage of the trustor or of others known as beneficiaries. internment and other plans. payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life. (k) Investment Advisor/Agent/ Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others. columnist. as to the value of any security and as to the advisability of trading in any security. or (2) who for compensation and as part of a regular business. exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee. reports. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage. analyzes reports concerning the capital market.Page 3 . Proceeds refers to an amount derived or realized from an unlawful activity. it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the act. Rule 3. or (7) Any transaction that is similar. Rule 3. charges. disbursements. within the limits of the AMLA.e. where any of the following circumstances exists: (1) There is no underlying legal or trade obligation. payments. accounts. Suspicious transactions are transactions. SEC or IC supervision applies only to the registration of the covered institution.c. (2) Drafts. trust certificates.f.31 (o) “Property” includes any thing or item of value. life or non-life. (3) Securities or negotiable instruments. checks and notes. Supervising Authority refers to the BSP. costs. Rule 3. devices. real or personal. analogous or identical to any of the foregoing. the SEC and the IC.000. commercial papers. S-7 05. papers or things used in or having any relation to any unlawful activity. assignment or delivery. (6) The transaction is in any way related to an unlawful activity or any money laundering activity or offense under this act that is about to be.1. transaction tickets and confirmations of sale or investments and money market instruments. tangible or intangible. expenditures. (5) Any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution. and maintenance of any unlawful activity. (3) The amount involved is not commensurate with the business or financial capacity of the client. deposit S Regulations Appendix S-7 . profits. and (5) Other similar instruments where title thereto passes to another by endorsement. Monetary Instrument refers to: (1) Coins or currency of legal tender of the Philippines. is being or has been committed. and contracts of suretyship. (2) The client is not properly identified. (4) Taking into account all known circumstances. regardless of amount. (4) Contracts or policies of insurance. the SEC or the IC. bonds.Page 4 certificates. financial or economic means. purpose or economic justification. custodial receipts or deposit substitute instruments. Where the BSP. the BSP. shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. privilege.00 within one (1) banking day. Manual of Regulations for Non-Bank Financial Institutions . effects and any amount realized from any unlawful activity.d. refunds and other similar items for the financing. Rule 3. operations. Covered Transaction is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Php500. and (3) All moneys.g. It includes: (1) All material results.b. claim or right with respect thereto. Offender refers to any person who commits a money laundering offense. Rule 3. (2) All monetary.APP. or any interest therein or any benefit.b. Person refers to any natural or juridical person. outlays. Rule 3. or of any other country. documents. Rule 3.12. trading orders. otherwise known as the Revised Penal Code. panel or group of which he is a member.A. as amended. conversion. 5. for himself or for another. otherwise known as the Comprehensive Dangerous Drugs Act of 2002. Rule 3. (19) Directly or indirectly becoming interested. into any contract or transaction manifestly and grossly disadvantageous to the same. 3019. 14.31 Rule 3. even if he votes against the same or he does not participate in the action of the board. 3815.A. otherwise known as the Anti-Graft and Corrupt Practices Act. 9165. g. percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party. (14)Directly or indirectly requesting or receiving any gift. present. (17) Entering. No. or in which he is prohibited by the Constitution or by any law from having any interest. in any manner or capacity.A. to the following: (A) Kidnapping for ransom under Article 267 of Act No. committee. c.i. advantage or preference in the discharge of his official. 7080. Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10)Possession of prohibited drugs (11)Use of prohibited drugs (12)Cultivation of plants which are sources of prohibited drugs (13)Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b. present or other pecuniary or material benefit. (1) Kidnapping for ransom (B) Sections 4. 9. panel or group. including the government. 10. 8. No. misuse or malversation of Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . No. from any person for whom the public officer. as amended. h and i of R. S-7 05. or having material interest in any transaction or act requiring the approval of a board. has secured or obtained. administrative or judicial functions through manifest partiality. whether or not the public officer profited or will profit thereby. (16) Causing any undue injury to any party. e. (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den. without prejudice to Section 13 of R. on behalf of the government.APP. wherein the public officer in his official capacity has to intervene under the law. and which exercise of discretion in such approval.Page 5 . evident bad faith or gross inexcusable negligence. in consideration for the help given or to be given. (20) Plunder through misappropriation. or will secure or obtain. share. No. Transaction refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. any government permit or license. 15 and 16 of R. (2) Importation of prohibited drugs. as amended. 6. It also includes any movement of funds by any means with a covered institution. (D) Plunder under R. or giving any private party any unwarranted benefits. (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity. (15) Directly or indirectly requesting or receiving any gift. 12. Unlawful activity refers to any act or omission or series or combination thereof involving or having relation.12. 13. (3) Sale of prohibited drugs. 3019. for personal gain.h.A. (4) Administration of prohibited drugs. money. (26) Robbery with violence or intimidation of persons. 295.31 public funds or raids upon the public treasury. agencies. instrumentalities or government-owned or controlled corporations or their subsidiaries. to the prejudice of the offended party or any third person. 300. even though such obligation be totally or partially guaranteed by a bond. (34) Qualified theft.Page 6 (F) Jueteng and Masiao punished as illegal gambling under P. (E) Robbery and extortion under Articles 294. (25) Plunder by taking undue advantage of official position. even though such obligation be based on an immoral or illegal consideration. road or alley. to the prejudice of another. 296. Manual of Regulations for Non-Bank Financial Institutions . (H) Qualified theft under Article 310 of the Revised Penal Code.D. (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting. connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. (24) Plunder by establishing agricultural. (31) Piracy on the high seas. S-7 05. authority. relationship. industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests. 301 and 302 of the Revised Penal Code. any shares of stock. (38) Estafa by using a fictitious name. credit. (27) Robbery with physical injuries. or falsely pretending to possess power. (23) Plunder by obtaining. as amended. as amended and P. influence. (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions. (G) Piracy on the high seas under the Revised Penal Code. or under any other obligation involving the duty to make delivery or to return the same. and by writing any document above such signature in blank. percentage. (29) Jueteng. share. (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank. or for administration. goods. property. (33) Aiding and abetting pirates and brigands. or by denying having received such money. equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking. (30) Masiao. (32) Piracy in inland Philippine waters. S Regulations Appendix S-7 . kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned. or with use of firearms on a street. No. No.12. (21) Plunder by receiving. 299. 1602. receiving or accepting. any commission. as amended. as amended. qualifications. (35) Estafa with unfaithfulness or abuse of confidence by altering the substance. or other property. goods or any other personal property received by the offender in trust or on commission. gift. (28) Robbery in an uninhabited house or public building or edifice devoted to worship. directly or indirectly. 532.D. (I) Swindling under Article 315 of the Revised Penal Code. quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so.APP. directly or indirectly. committed in an uninhabited place and by a band. (51) Buying smuggled article after fraudulent importation. reproduction. alteration. otherwise known as the Electronic Commerce Act of 2000. but not limited to. the internet.31 agency.A. (52) Selling smuggled article after fraudulent importation. 455 and 1937. business or imaginary transactions. resulting in the corruption.Page 7 . (60) the unauthorized importation. (40) Estafa by pretending to have bribed any government employee. (47) Assisting in any fraudulent importation. (50) Concealing smuggled article after fraudulent importation. which refers to: (58) the unauthorized copying. (41) Estafa by postdating a check. concealing or destroying. which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system.12. making available to the public. (48) Assisting in any fraudulent exportation. without the knowledge and consent of the owner of the computer or information and communications system. (49) Receiving smuggled article after fraudulent importation. Hacking or cracking. (54) Fraudulent practices against customs revenue. or destroy using a computer or other similar information and communication devices.A. (61) the unauthorized use. steal. removal. S-7 05. downloading. electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works. document or any other papers. 8792. alter.3. fineness or weight of anything pertaining to his art or business. distribution. theft or loss of electronic data messages or electronic document. K. (62) the unauthorized storage. or (63) the unauthorized broadcasting.A. (44) Estafa by removing. or by means of other similar deceits. K.1. K. uploading. by means of deceit. (46) Fraudulent exportation of any vehicle.APP. in whole or in part. (45) Fraudulent importation of any vehicle. (J) Smuggling under R. or issuing a check in payment of an obligation when the offender has no funds in the bank. alteration. (42) Estafa by inducing another. (39) Estafa by altering the quality. such as. destruction. (59) the unauthorized dissemination. Nos. substitution. (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game. (53) Transportation of smuggled article after fraudulent importation. any court record. Piracy. No. No. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . or his funds deposited therein were not sufficient to cover the amount of the check. of protected material. (K) Violations under R. to sign any document. through the use of telecommunication networks. Violations of the Consumer Act or R. or (56) any access in order to corrupt.2. modification. including (57) the introduction of computer viruses and the like. in a manner that infringes intellectual property rights. communication. office files. No. label or other identification device. deceptive or misleading advertisements. (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market. of the same issuer or of a controlling.A. Manual of Regulations for Non-Bank Financial Institutions . including those perpetrated by terrorists against noncombatant persons and similar targets. (79) False representations in advertisements as the existence of a warranty or guarantee. (89) Sale. (83) Violation of required disclosures on consumer loans. (82) False.12. (65) Sale of any product that has been banned by a rule under the Consumer Act. (77) Unfair or unconscionable sales acts and practices. otherwise known as the Securities Regulation Code of 2000. (M) Fraudulent practices and other violations under R. (74) Introduction into commerce of any mislabeled or banned hazardous substance. stamp. 6235.Page 8 and murder. (85) Hijacking. (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe. S-7 05. (69) Revealing trade secrets. a series of transactions in securities that raises their prices to induce the purchase of a security. whether of the same or different class. (81) Mislabeling consumer products.31 (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act. (93) Manipulation of security prices by effecting. (67) Adulteration or misbranding of any consumer product. (66) Sale of any adulterated or mislabeled product using electronic documents. (78) Fraudulent practices relative to weights and measures. destructive arson S Regulations Appendix S-7 . destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets. counterfeiting or simulating any mark. as defined under the Revised Penal Code. (73) Sale of any drug or device beyond its expiration date. (70) Alteration or removal of the labeling of any drug or device held for sale. controlled or commonly controlled company by others.A. (68) Forging. a series of transactions in securities that depresses their price to induce the sale of a security. alone or with others. (L) Hijacking and other violations under R. as amended. (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act. (91) Violation of reportorial requirements imposed upon issuers of securities. (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act. of the same issuer or of a controlling. tag. 8799. (86) Destructive arson. controlled or commonly controlled company by others. (87) Murder. (94) Manipulation of security prices by effecting.APP. (75) Alteration or removal of the labeling of a hazardous substance. No. (76) Deceptive sales acts and practices. whether of the same or different class. alone or with others. offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC. (88) Hijacking. (84) Other violations of the provisions of the E-Commerce Act. (80) Violation of price tag requirements. or reporting such transaction. or acting as a salesman. squeezing the float. brokers and dealers. unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC. alone or with others. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman. (111) Aiding and Abetting in any violations of the Securities Regulation Code. or an associated person of any broker or dealer without any registration from the Commission.APP. (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer. fixing or stabilizing the price of such security. boiler room operations and such other similar devices. (98) Manipulation of security prices by effecting. (104) Insider trading. practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person. in an Exchange or using the facility of an Exchange which is not registered with the SEC. for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange. scheme or artifice to defraud in connection with the purchase and sale of any securities. not misleading. (110) Violations on the restrictions on borrowings by members. hype and dump. obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC. in the light of the circumstances under which they were made. (108) Making use of the facility of a clearing agency which is not registered with the SEC. (97) Manipulation of security prices by making false or misleading statements with respect to any material fact. alone or with others. (109) Violations of margin requirements.Page 9 . not registered with the SEC. a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close. (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made. (101) Employment of any device. (100) Execution of short sales or stoploss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors.12. any series of transactions for the purchase and/ or sale of any security traded in an Exchange for the purpose of pegging. (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security. (112) Hindering. (103) Engaging in any act. which he knew or had reasonable ground to believe was so false and misleading. S-7 05. transaction. (99) Sale or purchase of any security using any manipulative deceptive device or contrivance. painting the tape.31 (95) Manipulation of security prices by effecting. (107) Effecting any transaction in any security. Jurisdiction of Money Laundering Cases. RULE 5 JURISDICTION OF MONEY LAUNDERING CASES AND MONEY LAUNDERING INVESTIGATION PROCEDURES (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity. transacts or attempts to transact said monetary instrument or property. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. or relates to. RULE 4 MONEY LAUNDERING OFFENSE Rule 4. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC). fails to do so.1. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents. the proceeds of any unlawful activity. . Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing. (114) Any other violations of any of the provisions of the Securities Regulation Code. the reports required under Rule 9. involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. is “of a similar nature”.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing. involves. as to constitute the same as an unlawful activity under the AMLA.3. S Regulations Appendix S-7 .1. involving or relating to the proceeds of any unlawful activity. Accordingly.1.APP. Money laundering is a crime whereby the proceeds of an unlawful activity as herein defined are transacted. Rule 5. S-7 05. (b) Covered transactions deemed suspicious after an investigation conducted by the AMLC. the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3. thereby making them appear to have originated from legitimate sources.2. In determining whether or not a felony or offense punishable under the penal laws of other countries. Prosecution of Money Laundering (a) Any person may be charged with and convicted of both the offense of money Manual of Regulations for Non-Bank Financial Institutions .31 (113) Violations of any of the provisions of the implementing rules and regulations of the SEC.The AMLC shall investigate: (a) Suspicious transactions. (c) Money laundering activities.The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. Rule 5.i. RULE 6 PROSECUTION OF MONEY LAUNDERING Rule 6.Page 10 Rule 5. Investigation of Money Laundering Offenses.12. Money Laundering Offense. Attempts at Transactions. . and (d) Other violations of this act. 31 laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. the Chairman of the SEC or the Insurance Commissioner. Rule 7. the officer duly designated or authorized to discharge the functions of the Governor of the BSP. .3. or the Ombudsman. and the latter should find probable cause of a money laundering offense. However. Composition. S-7 05.1. When the AMLC finds. or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC. the Commissioner of the Insurance Commission and the Chairman of the SEC as members. Rule 6.The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. as the case may be. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the application Ex-Parte by the AMLC to the Court of Appeals for a Freeze Order with respect to the monetary instrument or property involved therein and resort to other remedies provided under the AMLA.2.5. Rule 6. Rule 6. it shall cause a complaint to be filed.12. pursuant to Section 7 (4) of the AMLA. Unanimous Decision.Page 11 . Rule 6. absence or disability of any member to discharge his functions. may be established by direct evidence or inferred from the attendant circumstances.The functions of the AMLC are defined hereunder: (1) to require and receive covered or suspicious transaction reports from covered institutions. the rules of court and other pertinent laws and rules. before the Department of Justice or the Ombudsman. however. it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt. Rule 6. Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan.7. Rule 7. involves or relates to the proceeds of any unlawful activity.4.1. which shall then conduct the preliminary investigation of the case. as the case may be.6. . Knowledge of the offender that any monetary instrument or property represents. shall act in his stead in the AMLC. Functions. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. including the element of knowledge that the monetary instrument or property represents.APP. Rule 6. after investigation.a. . No element of the unlawful activity. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . as the case may be. that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice.2. including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt.The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the BSP as Chairman. in the case of the incapacity. involves.b. RULE 7 CREATION OF ANTI-MONEY LAUNDERING COUNCIL (AMLC) Rule 7. the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. representing. Subject to such limitations as provided for by law. resolution or directive where the action sought therein contravenes the provisions of the Constitution. bureau. office. (10) to enlist the assistance of any branch. convention. detection and investigation of money laundering offenses and prosecution of offenders. necessary. S Regulations Appendix S-7 . involving.Page 12 (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database. track and analyze money laundering transactions for the resolute prevention. in any way. the proceeds of an unlawful activity. or the execution thereof is likely to prejudice the national interest of the Philippines. the AMLC may refuse to comply with any such request. the UN Security Council. The AMLC may require the intelligence units of the Armed Forces of the Philippines. detection and investigation of money laundering offenses. and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may. or request for assistance from a foreign State. or believed by the Council. However. in whole or in part. facilitate the resolute prevention. and other international organizations of which the Philippines is a member. (7) to implement such measures as may be inherent. for the freezing of any monetary instrument or property alleged to be proceeds of any unlawful activity as defined under Section 3(i) hereof. (5) to investigate suspicious transactions and covered transactions deemed suspicious after an investigation by the AMLC. the methods and techniques used in money laundering. (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. implied. resolutions and other directives of the United Nations (UN). the Philippine National Police. For this purpose. Manual of Regulations for Non-Bank Financial Institutions . to be. in undertaking any and all antimoney laundering operations. (6) to apply before the Court of Appeals. in any manner or by any means. incidental and justified under the AMLA to counteract money laundering. as well as their attached agencies. directly or indirectly. wherever located. the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store.APP. department. agency or instrumentality of the government. including government-owned and -controlled corporations. Ex-Parte. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations.12. S-7 05. the Department of Finance.31 (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered or suspicious transaction report. or related to. (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses. money laundering activities and other violations of this Act. the Department of Justice. (9) to develop educational programs on the pernicious effects of money laundering. which may include the use of its personnel. in respect of conventions. facilities and resources for the more resolute prevention. on the basis of substantial evidence. including government-owned and controlled corporations. bureau. unquestionable integrity and known probity. He must be a member of the Philippine Bar. Detail and Secondment. . subject to existing laws and Civil Service Rules and Regulations. Rule 8. or as often as may be necessary at the call of the Chairman. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank.The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP. in lieu of their respective compensation packages from their respective mother units.1. in any manner. agency or instrumentality of the government.The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. any information known to them by reason of their office. and all the members of the Secretariat.1. the SEC or the IC. S-7 05.1.a. in undertaking any and all antimoney laundering operations. the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. the Executive Director. on detail or on secondment. as are applicable to officers of similar rank.2. office. emoluments and all other benefits to which their AMLC Secretariat positions are entitled to.3. the salaries. as well as prohibitions. at least thirty-five (35) years of age.3. . Composition. . Rule 8.APP. require a system of Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . benefits and emoluments from their respective mother units. whether permanent. regulations and orders and resolutions issued pursuant thereto. Rule 8. . in case of corporate clients. department. Customer Identification. RULE 8 CREATION OF A SECRETARIAT Rule 8. Meetings. or any other branch. (11) To impose administrative sanctions for the violation of laws. Confidentiality Provisions. Detailed personnel shall continue to receive their salaries. shall not reveal.4. The Executive Director. They shall maintain a system of verifying the true identity of their clients and. RULE 9 PREVENTION OF MONEY LAUNDERING. must have served at least five (5) years either at the BSP.The AMLC shall meet every first Monday of the month. Seconded personnel shall receive.In organizing the Secretariat. the SEC or the IC. the AMLC may choose from those who have served. In case of violation of this provision. . Rule 7. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC. CUSTOMER IDENTIFICATION REQUIREMENTS AND RECORD KEEPING Rule 9.12. and shall be entitled to such benefits and subject to such rules and regulations. He shall be considered a regular employee of the BSP with the rank of Assistant Governor. the SEC or the IC and of good moral character. This prohibition shall apply even after their separation from the AMLA.Page 13 . for at least five (5) years in the BSP. continuously or cumulatively. Covered institutions shall establish and record the true identity of its clients based on official documents.The members of the AMLC. rules. Customer Identification Requirements Rule 9.31 investigation and prosecution of money laundering offenses and other violations of the AMLA. The following minimum information/ documents shall be obtained from customers that are corporate or juridical entities. (10) Source of fund(s). The following minimum information/documents shall be obtained from individual customers: (1) Name. as well as the authority and identification of all persons purporting to act on their behalf. Dealings with shell companies and corporations.31 verifying their legal existence and organizational structure.Before establishing business relationships. (2) By-laws. Rule 9. or that its business or operations has not been or is not in the process of being.d. nominee. (2) Present address. (5) Nationality.b.Page 14 Manual of Regulations for Non-Bank Financial Institutions . S Regulations Appendix S-7 . (6) Nature of work and name of employer or nature of self-employment/ business. Nominee and Agent Accounts. Trustee. Covered institutions shall also establish and record the true and full identity of such trustees. and (11) Names of beneficiaries in case of insurance contracts and whenever applicable. being legal entities which have no business substance in their own right but through which financial transactions may be conducted.When dealing with customers who are acting as trustee.APP. agents and other persons and the nature of their capacity and duties. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. agent or in any capacity for and on behalf of another. bearing a photograph of the customer. Minimum Information/ Documents Required for Individual Customers. S-7 05.1. (8) Tax identification number. including shell companies and corporations: (1) Articles of Incorporation/ Partnership.Covered institutions shall require customers to produce original documents of identity issued by an official authority. and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. (6) Contact numbers.1. (5) List of principal stockholders owning at least two percent (2%) of the capital stock. covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being. (7) Beneficial owners. Minimum Information/ Documents Required for Corporate and Juridical Entities. (4) Date and place of birth. should be undertaken with extreme caution. closed. (4) List of directors/partners. dissolved. . Examples of such documents are identity cards and passports. phased out. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws. (3) Official address or principal business address. Rule 9. (3) Permanent address. (7) Contact numbers.1. . it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties. Social Security System number or Government Service and Insurance System number. . (9) Specimen signature. shut down. wound up or voided.12. covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. if any. or terminated. Rule 9. nominees.c. c. . Rule 9. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts.1.2. Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. accounts under fictitious names. whichever is later. Rule 9.APP. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents.a. Prohibition Against Certain Accounts. . Form of Records. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided.31 Rule 9.e.2. Prohibition Against Opening of Accounts Without Face-to-face Contact.e. Record Keeping: Kinds of Records and Period for Retention.c of these Rules. That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records. and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution. the records on customer identification. account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Rule 9. The provisions of existing laws to the contrary notwithstanding. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file.1. . – All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. in accordance with the aforementioned client identification requirements. and/or the courts to establish an audit trail for money laundering. relationships and transactions such that any account.Page 15 . Rule 9. Covered institutions shall prepare and maintain documentation. Numbered Accounts.No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9. – Records shall be retained as originals in such forms as are admissible in court pursuant to Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 .b. Closed Accounts.g. anonymous accounts. Existing and New Accounts and New Transactions.2. Record Keeping Requirements Rule 9.1.f. Retention of Records in Case a Money Laundering Case has been Filed in Court. relationship or transaction can be so reconstructed as to enable the AMLC.12.. on their customer accounts. Rule 9. said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules. as the case may be. Rule 9.2.Peso and foreign currency non-checking numbered accounts shall be allowed: Provided. – If a money laundering case based on any record kept by the covered institution concerned has been filed in court.2.All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from 17 October 2001 or from the dates of the accounts or transactions.d.1. S-7 05.2. and all other similar accounts shall be absolutely prohibited. until it is confirmed that the case has been finally resolved or terminated by the court. Rule 9.With respect to closed accounts. electronic mail. Covered institutions shall use the existing forms for Covered Transaction Reports and Suspicious Transaction Reports. agent.Page 16 either via diskettes. provided that. or as may be determined by the AMLC.A. as amended.12.The Covered Transaction Report (CTR) and the Suspicious Transaction Report (STR) shall be in the forms prescribed by the AMLC.3. Reporting Transactions. R. in any manner or by any means.b. The reporting of covered transactions by covered institutions shall be deferred for a period of sixty (60) days after the effectivity of R. representatives. or any other information in relation thereto.A. Rule 9. the concerned officer and employee of the covered institution. advisors. Covered and Suspicious Transaction Report Forms. . in any manner or by any means.3. as amended. – When reporting covered or suspicious transactions to the AMLC. Exemption from Bank Secrecy Laws. the fact that a covered transaction report was made. Rule 9. . Confidentiality Provisions. Neither may such reporting be published or aired in any manner or form by the mass media. the contents thereof. employee. or media shall be held criminally liable. directly or indirectly. consultants or associates are prohibited from communicating. 9194. unless the supervising authority concerned prescribes a longer period not exceeding ten (10) working days. covered institutions and their officers and employees. to any person the fact that a covered or suspicious transaction report was made. 6426. in order to allow the covered institutions to configure their respective computer systems. The final flow and procedures for such reporting shall be mapped out in the manual of operations to be issued by the AMLC. agents. In case of violation thereof.3.d.3.A. S Regulations Appendix S-7 . 8791 and other similar laws. No. R. - of Covered Rule 9.APP.b. directly or indirectly.3.a. Rule 9.Covered institutions shall report to the AMLC all covered transactions and suspicious transactions within five (5) working days from occurrence thereof. employees.3. or any other information in relation thereto. In case of violation hereof. – When reporting covered transactions or suspicious transactions to the AMLC. Covered Transaction Reports and Suspicious Transaction Reports shall be submitted in a secured manner to the AMLC in electronic form. Should a transaction be determined to be both a covered and a suspicious transaction. to any person.c. with the corresponding hard copy for suspicious transactions.3.b. the contents thereof. 1405. the covered institution shall report the same as a suspicious transaction. advisor.A.2. all covered transactions during said deferment period shall be submitted thereafter. Rule 9. Period of Reporting Covered Transactions and SuspiciousTransactions.1. leased lines. covered institutions and their officers. shall not be deemed to have violated R.31 existing laws and the applicable rules promulgated by the Supreme Court. No. or through internet facilities. No. shall be criminally liable. entity. representative. S-7 05. the concerned officer. or other similar devices. until such time as the AMLC has issued new sets of forms. or the media. No. Rule 9. Manual of Regulations for Non-Bank Financial Institutions . Rule 9. consultant or associate of the covered institution. but are prohibited from communicating. 3. the AMLC may apply to the Court of Appeals for the freezing. whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. – No administrative. The amount of the monetary instrument. Definition of Probable Cause. (b) Considering the intricate and diverse web of related and interlocking accounts pertaining to the monetary instrument(s) or property(ies) that any person may create in the different covered institutions. shall lie against any person for having made a covered transaction report or a suspicious transaction report in the regular performance of his duties and in good faith. Upon receipt of the notice of the freeze order. S-7 05. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . property or related web of accounts as of the time they were frozen. not only of the monetary instruments or properties in the names of the reported owner(s)/holder(s). . 3. The name(s) of the account owner(s) or holder(s). specifying all the pertinent and relevant information which shall include the following: 1.1.3.3. the funds and sources of which originated from or are related to the monetary instrument(s) or property(ies) subject of the freeze order(s). Safe Harbor Provisions. the covered institution concerned shall immediately freeze the monetary instrument or property and related web of accounts subject thereof. – Rule 10. prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be. (a) After an investigation conducted by the AMLC and upon determination that probable cause exists that a monetary instrument or property is in any way related to any unlawful activity as defined under Section 3 (i).31 Rule 9.Page 17 .12.3. 2.a. Within twenty-four (24) hours from receipt of the freeze order. the AMLC may file an Ex-Parte application before the Court of Appeals for the issuance of a freeze order on any monetary instrument or property subject thereof prior to the institution or in the course of.e. Rule 10. (c) The freeze order shall be effective for twenty (20) days unless extended by the Court of Appeals upon application by the AMLC. Rule 10. The account number(s). Rule 10. their branches and/or other units. and monetary instruments or properties named in the application of the AMLC but also all other related web of accounts pertaining to other monetary instruments and properties. is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. Duty of Covered Institution Upon Receipt Thereof.APP. criminal or civil proceedings. a detailed written return on the freeze order.b. the covered institution concerned shall submit to the Court of Appeals and the AMLC. the criminal proceedings involving the unlawful activity to which said monetary instrument or property is any way related. Rule 10. by personal delivery.3. The covered institution shall likewise immediately furnish a copy of the notice of the freeze order upon the owner or holder of the monetary instrument or property or related web of accounts subject thereof.c.Probable cause includes such facts and circumstances which would lead a reasonably discreet. RULE 10 APPLICATION FOR FREEZE ORDERS Rule 10.2. When the AMLC May Apply for the Freezing of Any Monetary Instrument or Property. the funds and sources of which originated from and/or are materially linked to the monetary instrument(s) or property(ies) subject of the freeze order(s). . the covered institution shall not lift the effects of the freeze order without securing official confirmation from the AMLC.4. when it has been established that there is probable cause that the deposits or investments involved are related to an unlawful activity as defined in Section 3 (i) hereof or a money laundering offense under Section 4 hereof. S-7 05. otherwise known as the Comprehensive Dangerous Drugs Act of 2002. Rule 10. as amended. said period shall be deemed suspended and the freeze order shall remain effective. Related Web of Accounts pertaining to the money instrument or property subject of the freeze order is defined as those accounts.6.2.A. as defined under the Revised Manual of Regulations for Non-Bank Financial Institutions . 14. 6235. (c) Hijacking and other violations under R. R. Rule 11. as amended. 15 and 16 of R. otherwise known as the Revised Penal Code. Rule 10. Notwithstanding the provisions of R.2.No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period.3. 6426.5. No. 5. Upon receipt of the freeze order issued by the court of appeals and upon verification by the covered institution that the related web of accounts originated from and/or are materially linked to the monetary instrument or property subject of the freeze order. 13. No.A.A.Before the twenty (20) day period of the freeze order issued by the court of appeals expires. . All relevant information as to the nature of the monetary instrument or property. R. Prohibition Against Issuance of Freeze Orders Against Candidates for an Electoral Office During Election Period. No. Definition of Related Web of Accounts.12. destructive arson and murder. except in cases as provided under Rule 11. and other laws. 1405. Authority to Inquire into Bank Deposits Without Court Order. as amended. 12. 8791. Upon the timely filing of such application and pending the decision of the Court of Appeals to extend the period. Extension of the Freeze Order. . the covered institution shall freeze these related web of accounts wherever these funds may be found. 10.Page 18 Rule 10. The time when the freeze thereon took effect.1. 3815. the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates upon order of any competent court in cases of violation of this Act. 8. The return of the covered institution as required under rule 10. and 6. 9165.5.c shall include the fact of such freezing and an explanation as to the grounds for the identification of the related web of accounts.A. Authority to Inquire into Bank Deposits with Court Order.31 4. RULE 11 AUTHORITY TO INQUIRE INTO BANK DEPOSITS Rule 11.The AMLC may inquire into or examine deposit and investments with any banking institution or non-bank financial institution and their subsidiaries and affiliates without a Court Order where any of the following unlawful activities are involved: (a) Kidnapping for ransom under Article 267 of Act No. S Regulations Appendix S-7 . (b) Sections 4. 9. the AMLC may apply in the same court for an extension of said period. However.6.APP. No.A. No. Any information on the related web of accounts pertaining to the monetary instrument or property subject of the freeze order. The BSP shall promulgate its rules of examination for ensuring compliance by banks and non-bank financial institutions and their subsidiaries and affiliates with the AMLA and these rules. by verified petition.a.To ensure compliance with this act. Rule 12.banking institution upon receipt of the AMLC Resolution. in whole or in part.APP. Claim on Forfeited Assets. Rule 11. related to said report.3. and for segregation or exclusion of the monetary instrument or property corresponding thereto.12. Rule 11. Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA.2. including those perpetrated by terrorists against noncombatant persons and similar targets.b. in a petition filed for the purpose. in default of which the said order shall become final and Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 .2.Page 19 . Procedure For Examination Without A Court Order. When Civil Forfeiture May be Applied. ordered the seizure of any monetary instrument or property. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture.3. – The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. .3. in accordance with the rules of examination of the BSP. the offender or any other person claiming an interest therein may apply. Authority to Institute Civil Forfeiture Proceedings.Where any of the unlawful activities enumerated under the immediately preceding Rule 11.a. the Revised Rules of Court on civil forfeiture shall apply. and the court has. and there is probable cause that the deposits or investments with any banking or non-banking financial institution and their subsidiaries and affiliates are in anyway related to these unlawful activities the AMLC shall issue a resolution authorizing the inquiry into or examination of any deposit or investment with such banking or non-banking financial institution and their subsidiaries and affiliates concerned. Any findings of the BSP which may constitute a violation of any provision of this act shall be transmitted to the AMLC for appropriate action. Duty of the banking institution or non. . S-7 05. immediately upon receipt of the AMLC Resolution. RULE 12 FORFEITURE PROVISIONS Rule 12.31 Penal Code. Additional Exception to the Bank Secrecy Act. BSP Rules of Examination. – When there is a Suspicious Transaction Report or a Covered Transaction Report deemed suspicious after investigation by the AMLC. The banking institution or the non-banking financial institution and their subsidiaries and affiliates shall. for a declaration that the same legitimately belongs to him.2 are involved.BSP Authority to Examine deposits and investments.1. as amended. . the BSP may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates when the examination is made in the course of a periodic or special examination. allow the AMLC and/or its authorized representative(s) full access to all records pertaining to the deposit or investment account. Rule 11. Rule 12. Rule 11. directly or indirectly.2. The AMLC may execute a request for assistance from a foreign state by: (1) tracking down. diminished in value or otherwise rendered worthless by any act or omission.1.12. destroyed. the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for S Regulations Appendix S-7 .Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense. any or all of the persons named in said request. (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules.The AMLC may make a request to any foreign state for assistance in (1) tracking down. Powers of the AMLC to Act on a Request for Assistance from a Foreign State. . Obtaining Assistance from Foreign States. .3.31 executory. . removed. or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court. Rule 13. be located. with due diligence. Payment in Lieu of Forfeiture. freezing. RULE 13 MUTUAL ASSISTANCE AMONG STATES Rule 13. Manual of Regulations for Non-Bank Financial Institutions . accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. restraining and seizing assets alleged to be proceeds of any unlawful activity. . and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided. be at all times recognized.Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA. Rule 13. or it has been substantially altered. This provision shall apply in both civil and criminal forfeiture. The principles of mutuality and reciprocity shall.APP. instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein. and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. thereby rendering the same difficult to identify or be segregated for purposes of forfeiture. or it has been concealed. directly or indirectly. or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity. and said order cannot be enforced because any particular monetary instrument or property cannot. Rule 12. for this purpose. money laundering offense or any other matter directly or indirectly related thereto. restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules.2. freezing. the court may.Page 20 delaying the execution thereof.4. This provision shall apply in both civil and criminal forfeiture. converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof. Request for Assistance from a Foreign State. S-7 05. (3) to the extent allowed by the law of the foreign state. (2) obtaining information that it needs relating to any covered transaction. applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of. That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state. attributable to the offender. Authentication of Documents . A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense. consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept. . secretary of state. Rule 13. Suppletory Application of the Revised Rules of Court. and authenticated by the seal of his office.5. the government of the requesting state. (3) give sufficient particulars as to the identity of said person. – Rule 13.The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines. and (8) contain such other information as may assist in the execution of the request.7. unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. consul general. document. Rule 13. Rule 13. or of the person administering the government or a department of the requesting territory. material or object obtained pursuant to said request. orders or processes needed by the requesting state. (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction. is to be produced.4.7. (5) ask from the covered institution concerned any information. magistrate or equivalent officer in or of.Page 21 .1.APP. document. Requirements for Requests for Mutual Assistance from Foreign States. (7) give all the particulars necessary for the issuance by the court in the requested state of the writs. That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. material or object which may be of assistance to the investigation or prosecution. and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister. the requesting state. The certificate of authentication may also be made by a secretary of the embassy or legation. Limitations on Requests for Mutual Assistance. material or object which may be of assistance to the investigation or prosecution. consul. or officer in or of. S-7 05. Rule 13. (4) give particulars sufficient to identify any covered institution believed to have any information. vice consul.6.12. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . (6) specify the manner in which and to whom said information.31 and/or search any or all such persons named therein and/or remove any document. a document is authenticated if the same is signed or certified by a judge. and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided. material or object named in said request: Provided. document. protectorate or colony. That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state.For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA. to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on 22 October 2001.APP. .00. Rule 14. . and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. Rule 13. However. Rule 14.000. its officers and employees. shall be imposed upon a person convicted under Section 4 (b) of the AMLA. money laundering is deemed to be S Regulations Appendix S-7 .d.000. S-7 05.The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than Php1. as amended by Manual of Regulations for Non-Bank Financial Institutions . 9160.1. application for examination of witnesses.1. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions. – The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. at its discretion. impose fines upon any covered institution. .c. or both.The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Php3.1.A.2. Penalties under Section 4 (b) of the AMLA. Penalties under Section 4 (c) of the AMLA.12. procuring search warrants. Extradition. .(1) After due notice and hearing. production of bank documents and other materials and all other actions not specified in the AMLA and these Rules. Authority to Assist the United Nations and other International Organizations and Foreign States. included as an extraditable offense in any extradition treaty existing between said state parties. shall be imposed on a person convicted under Section 4(c) of the AMLA.5 Million but not more than Php3. resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. convention.0 Million. Rule 14.7. Rule 14. and other international organizations of which the Philippines is a member.00 but not more than Php500. No. or any person who violates any of the provisions of R.The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than Php100. which is subject of a request by a foreign state.31 execution and satisfaction of final judgments of forfeiture. the UN Security Council. Administrative Sanctions.Page 22 RULE 14 PENAL PROVISIONS Rule 14.0 Million but not more than twice the value of the monetary instrument or property involved in the offense.1. the AMLC may refuse to comply with any such request.b. – The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. and assistance for any of the aforementioned actions.1. Penalties for the Crime of Money Laundering. however. the AMLC shall.8.a. resolutions and other directives of the United Nations (UN). Rule 13. shall be imposed upon a person convicted under Section 4 (a) of the AMLA. With respect. Penalties under Section 4 (a) of the AMLA. writer. Refusal by a Public Official or Employee to Testify.The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. Penalties for Malicious Reporting. Provisional Application. suffer perpetual or temporary absolute disqualification from office. regulations. shall be imposed on a person convicted for a violation under Section 9(c). If the offender is an alien. Rule 15. reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than Php100. or both. orders and resolutions issued pursuant thereto. 9194 and rules. – Remedies Rule 15. Rule 14. but in no case shall such fines be less than Php100. . at the discretion of the court: Provided.5. Rule 14. Prohibition against Political Persecution.0 Million. manager and editor-in-chief shall be liable under this act.00 but not more than Php500. The fines shall be in amounts as may be determined by the council. In case of a breach of confidentiality that is published or reported by media.000. shall be imposed on a person convicted under Section 9 (b) of the AMLA. president. in addition to the penalties herein prescribed.000.00. S-7 05. . be deported without further proceedings after serving the penalties herein prescribed. such as the nature and gravity of the violation or irregularity. or in bad faith.A.Page 23 . Rule 14. That the offender is not entitled to avail the benefits of the Probation Law. or allowed by their gross negligence the commission of the crime. . for provisional remedies to prevent the Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 .2. Rule 14.The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than Php100.2. as the case may be.1.12. Where Offender is a Juridical Person.00 but not more than Php500. partnership or any juridical person. the responsible reporter. Exception. as the case may be.000. he shall.6. Penalties for Failure to Keep Records . . . taking into consideration all the attendant circumstances.If the offender is a corporation.2.Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein.00.31 R.APP. Rule 14.a.3. the court may suspend or revoke its license. he shall. If the offender is a juridical person.000. If the offender is a public official or employee. Penalties for Breach of Confidentiality. association. RULE 15 PROHIBITIONS AGAINST POLITICAL HARASSMENT Rule 15.The AMLC may apply. in the course of the criminal proceedings.Any person who. in addition to the penalties prescribed herein.00 but not to exceed Php500. the penalty shall be imposed upon the responsible officers.00. – The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Php500.00 but not more than Php1. No.000. who participated in. publisher.000.4. with malice. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period.000. The imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the persons responsible for the violations. a. 9194. and set-up an audit function to test the system. the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. under their S Regulations Appendix S-7 . designate compliance officers at management level. information dissemination on money laundering activities and their prevention. as amended by R. Rule 17. . .A.APP. procedures and controls.Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. – (a) Within thirty (30) days from the effectivity of R. institutionwide “know-your-client” policy.2. the BSP.2. – Rule 17. No. No. detection and reporting. Money Laundering Prevention Programs. RULE 17 IMPLEMENTING RULES AND REGULATIONS AND MONEY LAUNDERING PREVENTION PROGRAMS Rule 17. no assets shall be attached to the prejudice of a candidate for an electoral office during an election period.2. Restitution.1. set-up an effective dissemination of information on money laundering activities and their prevention.A. a system of flagging and monitoring transactions that qualify as suspicious transactions. the SEC and the IC shall.A. No. as part of their money laundering programs.12. as amended by R. issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of R.2. However. and the training of responsible officers and personnel of covered institutions. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. S-7 05. detection and reporting. the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA. which shall be submitted to the Congressional Oversight Committee for approval.b.Where there is conviction for money laundering under Section 4 of the AMLA. No. RULE 16 RESTITUTION Rule 16. However. 9160.31 monetary instrument or property subject thereof from being removed. subject to such guidelines as may be prescribed by their respective supervising authority. regardless of amount or covered Manual of Regulations for Non-Bank Financial Institutions . 9160. Every money laundering program shall establish detailed procedures implementing a comprehensive. (b) The Supervising Authorities. Rule 15. commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. Rule 17.b. concealed. institute adequate screening and recruitment procedures.2. Covered institutions shall adopt. Implementing Rules and Regulations. converted. the BSP. 9194. Rule 17.A. including. no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules. but not limited to. adopt internal policies.Page 24 own respective charters and regulatory authority.c. Costs and Expenses. – The budget of 25 Million Pesos appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC.The Oversight Committee shall have the power to promulgate its own rules. suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. . 9160.2. The members Rule 18. The costs and expenses incurred in defending the aforementioned action.3. No.A. Rule 19.These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of R.4.Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules.12. to oversee the implementation of this Act. from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. .A. . S-7 05. suit or proceeding may be paid by the AMLC in advance of the Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-7 . All covered institutions. or has been committed.There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. Training of Personnel. Rule 19. 9194. maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations. Rule 17. Powers of the Congressional Oversight Committee. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. as amended by R. . The BSP shall advance the funds necessary to defray the capital outlay.The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil. including banks insofar as non-deposit and nongovernment bond investment transactions are concerned.31 transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. RULE 18 CONGRESSIONAL OVERSIGHT COMMITTEE Rule 18. Composition of Congressional Oversight Committee. and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. Appropriations for succeeding years shall be included in the General Appropriations Act. Budget. Amendments. criminal or administrative action.1.Page 25 . is being. .1. RULE 19 APPROPRIATIONS FOR AND BUDGET OF THE AMLC Rule 17.2. shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be. No.APP. Separability Clause. No. including the relevant provisions of R. 9194 on Cases for Extension of Freeze Orders Resolved by the Court of Appeals. RULE 23 TRANSITORY PROVISIONS RULE 21 REPEALING CLAUSE Rule 23. executive orders. . are hereby repealed.1.A. R.All existing freeze orders which the Court of Appeals has extended shall remain effective.Effect of R.APP. 1405. as amended. Repealing Clause. decrees.A. – If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid. S-7 05. unless otherwise dissolved by the same court. . RULE 22 EFFECTIVITY OF THE RULES Rule 22. Rule 21. – These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. unless extended by the Court of Appeals. as are inconsistent with the AMLA. No. Effectivity. No. shall not be affected thereby.A. RULE 20 SEPARABILITY CLAUSE Rule 20.31 final disposition of such action. No.12. as amended. the other provisions of these Rules. amended or modified accordingly. rules and regulations or parts thereof.Existing freeze orders issued by the AMLC shall remain in force for a period of thirty (30) days after effectivity of this act. as amended.2. Rule 23. 6426.A.Page 26 Manual of Regulations for Non-Bank Financial Institutions .Transitory Provisions. and the application of such provision or Rule to other persons or circumstances. . 8791. and other similar laws. – All laws. suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. R. . S Regulations Appendix S-7 . The external auditor must not be currently engaged nor was engaged during the preceding year in providing the following services to the bank. QBs. b. Banks. In the case of a partnership. Such other services which could affect his independence as may be determined by the Monetary Board. implementation and assessment. QB. That the external auditor shall be changed or the lead and concurring partner shall be rotated every five (5) years or earlier: Provided. its subsidiaries and affiliates at the time of signing the engagement and during the engagement. trust entities or NSSLAs which have engaged their respective external auditors for a consecutive period of five (5) years or more as of 26 November 2003 (effectivity of Circular No. the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of UBs or KBs. such as the GAAS and the Code of Professional Ethics for CPAs. Internal audit functions. trust entity or NSSLA. In the case of partnership. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-8 . The external auditor to be hired shall also be in-charge of the audit of the entity’s subsidiaries and affiliates engaged in allied activities: Provided.12.0 million each and at least one (1) existing client UB or KB in the regular audit or in lieu thereof. Information systems design. The external auditor and the members of the audit team do not have/ shall not have outstanding loans or any credit accommodations (except credit card obligations which are normally available to other credit card holders and fully secured auto loans and housing loans which are not past due) with the bank. QBs.Page 1 . 2. APPOINTMENT AND THE REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF NSSLAs (Appendix to Sec. trust entity or NSSLA if he or any member of his immediate family has or has committed to acquire any direct or indirect financial interest in the bank. 410) shall have a one (1) year period from said date within which to either change their external auditors or rotate the lead and/or concurring partner. this limitation shall apply to the partners. further. associates and the auditor-in-charge of the engagement and members of their immediate family.APP. its subsidiaries and affiliates. S-8 06. The external auditor for a UB or KB must have at least twenty (20) existing corporate clients with resources of at least P50. That the rotation of the lead and concurring partner shall have an interval of at least two (2) years. trust entity or NSSLA. QB. trust entity or NSSLA its subsidiaries and affiliates: a. GENERAL REQUIREMENTS Only external auditors included in the list of BSP selected external auditors shall be engaged by banks. The following are the selection requirements for external auditors: 1. this prohibition shall apply to the partners and the auditorin-charge of the engagement. 5. The external auditor should have the following track record in conducting external audits: a. QB. QB. 4180S) A. and c. No external auditor may be engaged by a bank. trust entities or NSSLAs for regular audit or special engagements. The external auditor. 4. auditor-incharge and members of the audit team must adhere to the highest standards of professional conduct and shall carry out services in accordance with relevant ethical and technical standards. 3. or if his independence is considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs.31 GUIDELINES TO GOVERN THE SELECTION. QB. trust entity or national Coop Bank. auditor-in-charge of the engagement and the members of their immediate family shall not acquire any direct or indirect financial interest with a bank. associates and auditor-in-charge accept an audit engagement with a bank. its subsidiaries and affiliates. An undertaking: a. QB. A bank. auditor-in-charge and members of the audit team do not have nor shall apply for loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans) nor shall accept an audit engagement with a bank. That the external auditor. That an external auditor who has been selected by the BSP to audit a UB. the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of TBs. in case of partnership and shall be submitted to the appropriate department of the SES together with the following documents/information: 1. trust entity and national Coop Bank must have at least ten (10) existing corporate clients with resources of at least P25. c. bank. pre-audit analysis. 2. chief accounting officer or any position of equivalent rank. trust entities or national Coop Banks: Provided. its subsidiaries and affiliates where they have outstanding loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans which are not past due). trust entity.APP. partners. That the external auditor shall not accept an audit engagement with a bank.0 million each and at least one (1) existing client TB. partners.31 b. B. its subsidiaries and affiliates where they or any member of their immediate family have any direct or indirect financial interest and that their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs. QB. QB.12. TB. partners. Neither shall the external auditor. The external auditor for an RB or local Coop Bank must have at least three (3) years track record in conducting external audit: Provided. associates. and c. Information systems design. Such other services. QB. its subsidiaries and affiliates as chief executive officer. That the external auditor. its subsidiaries and affiliates where he was engaged during the preceding year in providing the following services: 1. implementation and assessment. 6. NSSLA.Page 2 managing partner. QB. trust entity. trust entity or national Coop Bank in the regular audit or in lieu thereof. APPLICATION AND PRE-QUALIFICATION REQUIREMENTS The application for BSP selection shall be signed by the external auditor or the S Regulations Appendix S-8 . QB. b. controller. trust entity. That an external auditor who has been selected by the BSP to audit a UB or KB is automatically qualified to audit a TB. Internal audit functions. QB. local Coop Bank and NSSLA. associates. NSSLA. chief financial officer. audit scope and detailed work program. KB. trust entity and national Coop bank is automatically qualified to audit an RB. and 7. trust entity. The external auditor must undertake to keep for at least five (5) years all audit or review working papers in sufficient detail to support the conclusions in the audit report which shall be made available to the BSP upon request. and 3. NSSLA. but shall not be limited to. The external auditor for a TB. QBs. S-8 06. trust entity or NSSLA shall not engage the services of an external auditor whose partner or auditor-in-charge of audit engagement during the preceding year had been hired or employed by the bank. QB. NSSLA. NSSLA. QB. which could affect his independence as may be Manual of Regulations for Non-Bank Financial Institutions . trust entity. Working papers shall include. trust entity or NSSLA and the external auditor where applicable. a notarized certification that the external auditor or the auditor-in-charge of the engagement has at least five (5) years experience in the regular audit of banks of appropriate category mentioning the banks they have audited.0 million each. That the external auditor and members of the audit team shall adhere to the highest standards of professional conduct and shall carry out their services in accordance with relevant ethical and technical standards of the accounting profession. such as. and e. negate the auditor’s adherence to the highest standards of professional conduct nor degrade his integrity and objectivity. List of existing corporate clients with resources of at least P50. f. previous conviction or any pending investigation. but not limited to the following: 1. QB. trust entity. and national Coop Bank. c.. NSSLA and a local Coop Bank.QB. the following cases: Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-8 . affect audit engagement existing as of 26 November 2003 (effectivity of Circular No. That the external auditor shall not accept an audit engagement with a bank. chief executive officer. QB. the BSP may dispense with this requirement upon determination by the Monetary Board that the case involves purely legal question. its subsidiaries and affiliates where an officer (i. Copy of the proposed engagement contract between the bank. b. in the event that the certification cannot be obtained because of the pendency of a case. C. chief financial officer. NSSLA. Other documents/information: a.12. That the external auditor shall keep all audit or review working papers for at least five (5) years in sufficient detail to support the conclusions in the audit report. in any way. e. controller. REQUIRED REPORTS 1. This requirement shall not. its subsidiaries and affiliates being audited during the engagement period and within a period of one (1) year after the audit engagement. trust entity. If the external auditor for a UB or KB has no existing UB or KB client. concurring partner. list of existing corporate clients with resources of at least P25. and h. and the external auditor for a TB. and 2. however. That the audit work shall include assessment of the audited institution’s compliance with BSP rules and regulations. Loans and other risk assets review and classification. chief accounting officer or other senior officer of equivalent rank) had been a partner of the external auditor or had worked for the audit firm and had been the auditorin-charge of the audit engagement of said entities during the year immediately preceding the engagement.e. Updated PRC license (for individual auditors) and business license for the partnership. and list of existing clients and/or details of three (3) years track record in external audit for external auditors of an RB. NSSLA. lead partner. NSSLA.31 determined by the Monetary Board from time to time. CAR. d. has no existing client TB or national Coop Bank. the external auditor must report to the BSP within thirty (30) calendar days after discovery. Certification from PRC that the external auditor. g. To enable the BSP to take timely and appropriate remedial action. trust entity and national Coop Bank. 410).APP.Page 3 . trust entity. for a TB. S-8 06. or does not. That the lead or concurring partner and auditor-in-charge shall not accept employment with the bank. auditor-in-charge and members of the audit team have no derogatory information. 2. QB.0 million each for external auditor of a UB or KB. However. QB. d. NSSLA. Subsidiary. QB.APP. Exists when the parent owns directly or indirectly more than one half of the voting power of an enterprise unless. Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit). its subsidiaries and affiliates shall be given the opportunity to be present in the discussions between the BSP and the external auditor regarding the audit findings. Control. QB. Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital. The management of the bank. QB. it can be clearly demonstrated that such ownership does not constitute control. QB.. trust entity or NSSLA. and b. trust entity. 4. b. breach of laws. controlled or held with power to vote by a bank. Loans and other risk assets review and classification. Power to appoint or remove the majority of the members of the board of directors or equivalent governing body. controlled or held with power to vote by a bank. S-8 06. trust entity. The management of the bank. trust entity. Power over more than one-half of the voting rights by virtue of an agreement with other stockholders. NSSLA and a juridical person that is under common control with the bank. or e. understood that the accountability of an external auditor is based on matters within the normal coverage of an audit conducted in accordance with GAAS.12. b.) the external auditor shall submit directly to the BSP within fifteen (15) calendar days after the closing of the audit engagement a notarized certification that there is none to report. S Regulations Appendix S-8 . but not limited to: 1. It is. etc. its subsidiaries and affiliates shall be informed of the adverse findings and the external auditor’s report to the BSP shall include its explanation and/ or corrective action. Any director. 2. Termination or resignation as external auditor and stating the reason therefor. Manual of Regulations for Non-Bank Financial Institutions . NSSLA. Findings on matters of corporate governance that may require urgent action by the BSP. trust entity or NSSLA. A corporation. QB. 3. Affiliate. however. d. Power to govern the financial and operating policies of the enterprise under a statute or an agreement. A corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. dishonesty. 2. except in circumstances where the external auditor believes that the entity’s management is involved in fraudulent conduct. c. in exceptional circumstance.31 a. Control may also exist even when ownership is one half or less of the voting power of an enterprise when there is: a. The external auditor shall report directly to the BSP within fifteen (15) calendar days the occurrence of the following: a.Page 4 D. DEFINITION OF TERMS For purposes of these guidelines. 3. not more than fifty percent (50%) but not less than ten percent (10%) of the outstanding voting stock of which is directly or indirectly owned. CAR.g. Associate. In case there are no matters to report (e. manager or any person occupying a similar status or performing similar functions in the audit firm including employees performing supervisory role in the auditing process. fraud. c. Any other arrangement similar to any of the above. Power to cast the majority votes at meetings of the board of directors or equivalent governing body. and 2. the following terms shall be defined as follows: 1. Discovery of a material breach of laws or BSP rules and regulations such as. officer. That disclosure of information by the external auditor to the BSP as required under Items "C" and "F" hereof. shall be allowed. inclusion in the list of BSP-selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. their subsidiaries and affiliates and the external auditor to the appropriate department of the SES within fifteen (15) calendar days from signing thereof. Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-8 . F. H. regulatory and statutory requirements of the BSP and that both parties shall comply with said requirements. shall submit the audit engagement contract between them. or non-compliance with any provision of these guidelines or in case of dissolution of the audit firm except when said dissolution was solely for the purpose of admitting new partner/s and the new partner/s have complied with the requirements of these guidelines. Lead Partner. G. and NSSLAs. QBs. The BSP.31 5. QB. or NSSLAs.APP. The partner who is responsible for reviewing the audit report. QB. Also referred to as the engagement partner/partner-incharge/managing partner who is responsible for signing the audit report on the consolidated financial statements of the audit client. Partner. Grounds for delisting External auditors may be delisted from the list of BSP-selected external auditor for the bank. 6. Delisted external auditor may re-apply for BSP selection after the period prescribed by the Monetary Board. The BSP will circularize to all banks. DELISTING OF EXTERNAL AUDITORS 1. 8. QBs. within thirty (30) calendar days after the conclusion of said review. That both parties shall comply with all of the requirements under these guidelines. its subsidiaries and affiliates require the external auditor to undertake a specific review of a particular aspect of the operations of these institutions. E. SPECIFIC REVIEW When warranted by supervisory concern. trust entities and NSSLAs the list of selected external auditors once a year. and 3. Auditor-in-charge. or NSSLA shall be responsible for keeping the auditor fully informed of existing and subsequent changes to prudential. Procedure for delisting An external auditor shall only be delisted upon prior notice to him and after giving him the opportunity to be heard and defend himself by presenting witnesses/ evidence in his favor. INCLUSION IN BSP LIST In case of partnership. 7. That the bank. and where relevant. trust entity or NSSLA for violation of.Page 5 . trust entity. at the expense of the bank. shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks. for regular audit or special engagements.12. the individual audit report of any entity whose financial statements form part of the consolidated financial statements. Refers to the team leader of the audit engagement. 2. trust entity. trust entities. S-8 06. QBs. 2. Said contract shall include the following provisions: 1. however. All partners including those not performing audit engagements. the Monetary Board may. The report shall be submitted to the BSP and the audited institution simultaneously. NSSLA. trust entities. Concurring Partner. QB. AUDIT ENGAGEMENT CONTRACT Banks. QB. AUDIT BY THE BOARD OF DIRECTORS Pursuant to Section 58 of R. S-8 06. No. 8791. to conduct.A.APP. 529 dated 11 May 2006) Manual of Regulations for Non-Bank Financial Institutions . trust entity. NSSLA or the individual members thereof. otherwise known as “The General Banking Law of 2000” the Monetary Board may also direct the board of directors of a bank. an annual balance sheet audit of the bank.Page 6 created by the board. QB. either personally or by a committee S Regulations Appendix S-8 . (As amended by Circular No.12.31 I. trust entity or NSSLA to review the internal audit and the internal control system of the concerned entity and to submit a report of such audit to the Monetary Board within thirty (30) calendar days after the conclusion thereof. 4 Posting of BSP Certificate and Authority to Operate SECTION 4102P Definition of Terms SECTIONS 4103P .MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS P REGULATIONS (Regulations Governing Pawnshops) TABLE OF CONTENTS PART ONE .F.2 Organizational requirements 4101P.ORGANIZATION. OFFICERS AND EMPLOYEES SECTION 4141P Bonding of Officers and Employees SECTION 4142P (Reserved) i . MANAGEMENT AND ADMINISTRATION A. CAPITALIZATION SECTION 4106P Capital of Pawnshops SECTIONS 4107P . .4110P (Reserved) C. DIRECTORS/TRUSTEES.1 Form of organization 4101P.4140P (Reserved) G.3 Prior Bangko Sentral licensing to perform quasibanking functions 4101P.4105P (Reserved) B. SCOPE OF AUTHORITY SECTION 4101P Scope of Authority of Pawnshops 4101P. (RESERVED) SECTIONS 4111P . 4 Capital requirement 4151P.1 4161P.4170P (Reserved) ii . RECORDS AND REPORTS SECTION SECTION SECTIONS 4161P 4162P Records 4161P.2 Reports 4162P.4155P (Reserved) I.4150P (Reserved) H.4 Effect of possession of disqualifications 4143P.1 Definition of term 4151P.4160P (Reserved) J.2 Persons disqualified to become officers 4143P.1 4162P. BUSINESS DAYS AND HOURS SECTION 4156P Business Days and Hours SECTIONS 4157P .SECTION 4143P Disqualification of Directors/Trustees and Officers 4143P.6 Date of opening for business SECTIONS 4152P .5 (Reserved) 4143P.3 Disqualification procedures 4143P.1 Persons disqualified to become directors/trustees 4143P.6 Watchlisting SECTIONS 4144P .3 Basis for establishment 4151P. BRANCHES AND OTHER OFFICES SECTION 4151P Establishment of Branches 4151P.5 Documentary requirements 4151P.3 Uniform system of accounts Philippine Financial Reporting Standards/ Philippine Accounting Standards Categories of and signatories to reports Manner of filing Sanctions 4163P .2 4162P.2 Operations and functions 4151P. 4180P (Reserved) L. (RESERVED) SECTIONS 4201P .4198P (Reserved) SECTION 4199P General Provision on Sanctions PART TWO . INTERNAL CONTROL SECTION 4171P Safekeeping of Pawns and Records and Insurance of Office Building SECTION 4172P Separation of Pawnshop Business from Other Businesses SECTIONS 4173P . .K. MISCELLANEOUS PROVISIONS SECTION 4181P Business Name SECTION 4182P Closing or Transfer of Business SECTIONS 4183P .BORROWING OPERATIONS A. OTHER BORROWINGS SECTION 4286P Borrowings Constituting Quasi-Banking Functions iii .4285P (Reserved) K.J.4189P (Reserved) SECTION 4190P Duties and Responsibilities of Pawnshops and their Directors/ Officers in All Cases of Outsourcing of Pawnshop Functions SECTION 4191P (Reserved) SECTION 4192P Prompt Corrective Action Framework SECTION 4193P Supervision by Risks SECTION 4194P Market Risk Management SECTION 4195P Liquidity Risk Management SECTIONS 4196P . .SECTIONS 4287P .2 Sanctions SECTION 4323P Reminder to Pawner.4320P (Reserved) B. SECURED LOANS SECTION 4321P Kinds of Security SECTION 4322P Pawn Ticket 4322P.J.4298P (Reserved) SECTION 4299P General Provision on Sanctions PART THREE .4335P (Reserved) C. LOANS IN GENERAL SECTION 4301P Loan Limits SECTION 4302P Interest and Other Charges SECTION 4303P Past Due Accounts.4395P (Reserved) K. MISCELLANEOUS SECTIONS 4396P . (RESERVED) SECTIONS 4336P. Notice to the Public SECTION 4324P Public Auction of Pawns SECTIONS 4325P . Renewal/Redemption of Pawns SECTION 4304P (Reserved) SECTION 4305P Interest Accrual on Past Due Loans SECTIONS 4306P .1 Contents of pawn ticket 4322P.LOANS AND INVESTMENTS A.4398P (Reserved) SECTION 4399P General Provision on Sanctions iv . 4650P (Reserved) B. Establishments and Public Utilities to Install Facilities and Other Devices Disclosure of Remittance Charges and Other Relevant Information v .4690P (Reserved) Batas Pambansa Blg.PART FOUR SECTIONS PART FIVE SECTIONS (RESERVED) 4401P . Institutions.4656P (Reserved) SECTION 4657P SECTIONS 4658P . SUNDRY PROVISIONS SECTION 4651P Supervisory Powers of the Bangko Sentral SECTION 4652P Basic Law Governing Pawnshops SECTION 4653P Accounting for Pawnshop Premises. OTHER OPERATIONS SECTION 4601P Fines and Other Charges 4601P.An Act to Enhance the Mobility of Disabled Persons by Requiring Certain Buildings.4599P (Reserved) PART SIX .4659P (Reserved) SECTION 4660P SECTIONS 4661P . 344 . Other Fixed Assets SECTIONS 4654P .MISCELLANEOUS A.4499P (Reserved) (RESERVED) 4501P .1 Guidelines on the imposition of monetary penalties SECTIONS 4602P . 4691P.4698P (Reserved) SECTION 4699P Valid Identification (ID) Cards for Financial Transactions Administrative Sanctions vi .1 .9 Sanctions and penalties SECTIONS 4692P .SECTION 4691P Anti-Money Laundering Regulations 4691P.4694P (Reserved) SECTION 4695P SECTIONS 4696P .8 (Reserved) 4691P. SUBJECT MATTER P-1 Chart of Accounts and Description of Loan Register of Pawnshops P-2 List of Reports Required from Pawnshops Annex P-2-a .Format of Resolution for Signatories of Categies A-3 and B Reports P-4 Standard Pawn Ticket P-4-a Terms and Conditions of Standard Pawn Ticket P-5 Anti-Money Laundering Regulations Annex P-5-a .List of Appendices 08. as amended by R.12. No.Reporting Guidelines on Crimes/Losses P-3 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex P-3-a .Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions P-6 Revised Implementing Rules and Regulations R.Certification of Compliance with Anti-Money Laundering Regulations Annex P-5-b .Format of Resolution for Signatories of Category A-2 Reports Annex P-3-c .31 LIST OF APPENDICES No.Format of Resolution for Signatories of Category A-1 Reports Annex P-3-b . 9194 Manual of Regulations for Non-Bank Financial Institutions P Regulations . No. 9160.A.A. 1 Form of organization.§§ 4101P .2 Organizational requirements1 Any person or entity desiring to establish a pawnshop shall register with the Bureau of Trade Regulation and Consumer Protection (BTRCP). In the case of a pawnshop organized as a corporation. or if there be no capital stock. MANAGEMENT AND ADMINISTRATION A. as the case may be. at least seventy percent (70%) of the voting stock therein shall be owned by citizens of the Philippines. No.Page 1 . Only Filipino citizens may establish and own a pawnshop organized as a single proprietorship. Pawnshops established as partnerships prior to 29 January 1973. in the case of a partnership/corporation. 114 and the following regulations. in general. § 4101P.2 08. or with the Securities and Exchange Commission (SEC). but may be reduced. a partnership or corporation. The percentage of foreign-owned voting stock in a pawnshop corporation shall be determined by the citizenship of its individual stockholders. the single proprietorship or the partnership/corporation. at least seventy 1 percent (70%) of the members entitled to vote shall be citizens of the Philippines. A pawnshop may be established as a single proprietorship. the percentage of foreign ownership in that pawnshop. of the pawnshop may retain the percentage of foreign equity as of 29 January 1973. Pawnshops with foreign equity participation shall also register with the Board of Investments. Pawnshops registered as a corporation with foreign equity participation in excess of thirty percent (30%) of the voting stock. and said percentage shall not be increased. and once reduced shall not be increased thereafter beyond thirty percent (30%) of the capital stock of such pawnshop. or members entitled to vote. in the case of a single proprietorship.12. the stockholder corporation. or number of members entitled to vote. at least seventy percent (70%) of its capital shall be owned by Filipino citizens. or members entitled to vote of. but may be reduced and once reduced. See SEC Circular No. § 4101P. SCOPE OF AUTHORITY Section 4101P Scope of Authority of Pawnshops. of such pawnshop. After registering with the BTRCP or with the SEC. shall be computed on the basis of the foreign citizenship of the individuals owning voting stocks in.D.31 PART ONE ORGANIZATION. If a pawnshop is organized as a partnership. 3 dated 16 February 2006. and said percentage shall not be increased. shall not be increased thereafter beyond thirty percent (30%) of the voting stock. A pawnshop established as a single proprietorship by a non-Filipino owner prior to 29 January 1973 may continue as such during the lifetime of the registered owner. the power to engage in the business of lending money on the security of personal property within the framework and limitations of P. A duly organized and licensed pawnshop has. with non-Filipino partners whose aggregate holdings amount to more than thirty percent (30%) of the capital may retain the percentage of their aggregate holdings as of 29 January 1973. shall secure a business license from the city or municipality where the pawnshop is to be established and operated. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I .4101P. subject to the regulatory and supervisory powers of the Bangko Sentral ng Pilipinas (BSP). If the voting stock in a pawnshop corporation is held by another corporation. Such other documents as may be required by the BTRCP. Regularly engaged in lending shall refer to the practice of extending loans. f. As used in the definition of quasibanking functions. and h. Pawnshops desiring to engage in quasi-banking functions shall first obtain a Certificate of Authority from the BSP pursuant to BSP regulations. (3) Methods of borrowing: issuance. the SEC. (2) Twenty (20) or more lenders at any one time. Guidelines on lender count. P Regulations Part I . (As amended by CL-2008-078 dated 15 December 2008) § 4101P. discounts or rediscounts as a matter of business. continuous or consistent lending as distinguished from isolated lending transactions. c. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money. such as: (a) acceptances.e. (e) trust certificates. Projected financial statements covering the first twelve (12) months of operations. g. (f) repurchase agreements. whether the borrower’s liability thereby is treated as real or contingent. partnership or corporation shall file with the BSP an information sheet signed by the proprietor. Quasi-banking functions consist of the following: (1) Borrowing funds for the borrower’s own account. For the borrower’s own account shall refer to the assumption of liability in one’s own capacity and not in representation. Definition of quasi-banking functions. and (g) such other instruments as the Monetary Board may determine. managing partner or president under oath.3 Prior Bangko Sentral licensing to perform quasi-banking functions. or acceptance of debt instruments of any kind. and (4) Purpose: (a) relending.12. the SEC and/or the BSP in accordance with the forms prescribed by them: a. Certificate of incorporation or registration with SEC or BTRCP. or (b) purchasing receivables or other obligations.. when the institution is regularly engaged in lending. The following guidelines shall govern lender count on borrowings or funds mobilized by pawnshops: Manual of Regulations for Non-Bank Financial Institutions . (b) promissory notes. of any amount and maturity. b.2 . or of securities. or the BSP. a. Before commencing actual business operations. the single proprietorship. of another. from domestic or foreign sources. other than deposits. Application under oath (BTRCP) form. endorsement. including interbank borrowings or borrowings between financial institutions. Personal data sheet of owners/ partners/incorporators/directors/officers. advances. The following documents shall be filed with the BTRCP.§§ 4101P.31 in accordance with the requirements of the pertinent ordinance in that city or municipality. b. the following terms and phrases shall be understood as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in (3) and (4) above.3 08. i. or as an agent or trustee. d.Page 2 (c) participations. (d) certificates of assignment or similar instruments with recourse. Articles of Partnership/Incorporation (for partnerships and/or corporations). Relending shall be presumed in the absence of express stipulation. e.4101P. City/municipal license. List of partners/stockholders/ directors/officers. however. regardless of nature. Failure to display the original copy of the COR or AO shall be deemed a violation subject to a penalty of one thousand pesos (P1. or indorsee at some subsequent time. shall be considered borrowed funds or funds mobilized and such stockholders. directors/trustees or officers. irrespective of the date and amount. or circumstances indicate that the sale.4 Posting of BSP Certificate and Authority to Operate1.12. assignee. practice. and/or endorsement thereof legally obligates the pawnshop to repurchase or reacquire the securities/ receivables sold. 1 (5) Each buyer. and/ or endorsement of securities or receivables on a without recourse basis whenever the terms and/or attendant documentation. respectively.00) each for the first three (3) offenses. assignment. (4) Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm. endorsed or to pay the buyer. In such case the actual/ real lenders/placers as appearing in such proof. shall be the basis for counting the number of lenders/placers. and issuance of a letter to the city or municipality concerned advising them of the cancellation of the COR/AO and recommending the revocation of their business/mayor’s permit(s). assignee. the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided.Page 3 .§§ 4101P. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement. For subsequent violation.3 . (2) Each debt instrument payable to bearer. Pawnshops shall permanently display the original copy of the Certificate of Registration (COR) or Authority to Operate (AO) issued by the BSP to their head office or branch. whether under an and. as the case may be. or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement shall be counted as one (1) borrowing/placement. § 4101P. assigned. (3) Two (2) or more debt instruments issued to the same payee. the underwriter shall be counted as a lender.000. directors/ trustees or officers shall be counted in determining the number of lenders/placers.31 (1) For purposes of ascertaining the number of lenders/placers to determine whether or not a pawnshop is engaged in quasi-banking functions. shall be counted as one (1) lender/ placer. in a conspicuous place in their premises. preferably at the window or door that is clearly visible to the general public.4 08. That a debt instrument issued in the name of a husband and wife followed by the word spouses. the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. shall be counted as one (1) borrowing or placement. and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale. however. (6) Funds obtained by way of advances from stockholders. except when the pawnshop can prove that there is only one owner for several debt instruments so payable. That in case of unsold debt instruments in a firm commitment underwriting. and/or. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I .4101P. assignment. standby or best-efforts basis shall be counted on the basis of the number of purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided. It is understood that if the COR of the head office is Posting of BSP Certificate and Authority to Operate shall be effective starting 28 February 2009. automatic cancellation of the COR or AO issued to the pawnshop head office or branch. General Ledger/Journal covering the current and at least the preceding two (2) years of operations.g. h. however. Pawner shall refer to the borrower from a pawnshop. Vital records shall consist of the Loans Extended/Paid Registers. Premises shall refer to the area where the pawnshop conducts its business and maintains office.2008-003 dated 22 January 2008) Sec. 4107P .e.000. it may be increased but not beyond twenty-five percent (25%). c. Voting stock is that portion of the authorized capital which is subscribed and entitled to vote. P Regulations Part I .5 x 0. articles of incorporation/co-partnership. f.F. That for pawnshops existing as at 29 January 1973 whose value of properties exceeds the prescribed ratio. etc. unused accountable forms and permanent pawnshop records.§§ 4101P. especially those who have access to pawned articles. . j.5 feet. b.31 cancelled. Properties forming part of capital in accordance with the preceding paragraph may be valued at acquisition cost less depreciation or at any other value not exceeding the appraised value as fixed by an independent appraiser. Pawn is the personal property delivered by the pawner to the pawnee as security for a loan. e. including real estate and improvements thereon: Provided. DIRECTORS/TRUSTEES. d. The value of properties forming part of capital in accordance with the immediately preceding two paragraphs shall not exceed twenty-five percent (25%) of paid-in capital and surplus: Provided.12. which occupy considerable amount of space. Accountable officers and employees. OFFICERS AND EMPLOYEES Sec. 4141P Bonding of Officers and Employees. g. of pawnshops Manual of Regulations for Non-Bank Financial Institutions . i. stock certificates.5 x 1. with pawnbroker or pawnbrokerage. on the other hand. 4111P . Pawnee shall refer to the pawnshop or pawnbroker. Secs. Should the ratio.. Pawn ticket is the pawnbroker’s receipt for a pawn. 4102P Definition of Terms a. fall below the prescribed level. the AO of the branch(es) is/are likewise cancelled.4141P 08.Page 4 Secs. (RESERVED) Secs. CAPITALIZATION Sec. Pawnshop shall refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans. Paid-in capital shall mean cash and other properties. at the option of the contributor. (M.4 . It includes office or storage spaces maintained and/or used by the pawnshop which are adjacent to the pawnshop’s location. 4106P Capital of Pawnshops Pawnshops shall have a minimum paid-in capital of P100. Property shall include only such personal property as may actually be delivered to the control and possession of the pawnee. measuring at least 1. 4103P . office machines and the like. The term shall be synonymous. such percentage may be retained or reduced but shall not be increased thereafter. Bulky pawns shall refer to household appliances. i. partner or proprietor.4105P (Reserved) B.4140P (Reserved) G.4110P (Reserved) C. e.. That such properties are necessary for the conduct of the pawnshop business. and may be used interchangeably. forgery.§§ 4141P .4143P.1 Persons disqualified to become directors/trustees.31 shall be required to post bonds of reputable companies accredited by the Insurance Commissioner.1 07. § 4143P. 4143P Disqualification of Directors/ Trustees and Officers. (Next Page is Part I . The following regulations shall govern the disqualification of pawnshop directors/trustees and officers. swindling and theft. the following are disqualified from becoming directors/trustees of pawnshops: a. 4142P (Reserved) Sec. malversation. Permanently disqualified Directors/trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee position: (1) Persons who have been convicted by final judgment of the court for offenses involving dishonesty or breach of trust such as estafa. embezzlement.Page 5) Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I .12.Page 4a . extortion. Sec. Without prejudice to specific provisions of law prescribing disqualifications for directors/ trustees. (2) Persons who have been convicted by final judgment of the court for violation of banking laws. Page 5 . memorandum or rule or regulation of the BSP. X306. This disqualification shall be in effect as long as the refusal persists. and (v) A corporation. (2) Directors/trustees who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings. or at least two (2) obligations with other FIs. This disqualification shall be in effect as long as the delinquency persists. both regular and special. breach of trust or violation of banking laws but whose conviction has not yet become final and executory. This disqualification applies for purposes of the succeeding election. (iii) Any person whose borrowings or loan proceeds were credited to the account of. spendthrift or incapacitated to contract. (4) Persons convicted for offenses involving dishonesty. 4308Q. b. endorser or surety for loans from such FIs. or after the lapse of five (5) years from the Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I . (7) Persons dismissed from employment for cause. 4306S and 4303P. Included are: (1) Persons who refuse to fully disclose the extent of their business interest to the appropriate department of the SES when required pursuant to a provision of law or of a circular. Temporarily disqualified Directors/trustees/officers/employees disqualified by the Monetary Board from holding a director/trustee position for a specific/indefinite period of time. or used for the benefit of a director/ trustee or officer. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity or upon clearance.31 (3) Persons who have been judicially declared insolvent. (6) Directors/trustees disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. from the Monetary Board after showing good and justifiable reasons. or (4) Directors/trustees. or any twelve (12)-month period during said incumbency. (5) Directors/trustees and officers of closed institutions under the supervisory and regulatory powers of the BSP pending their clearance by the Monetary Board. officers or employees of closed institutions under the supervisory and regulatory powers of the BSP who were responsible for such institutions’ closure as determined by the Monetary Board. or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership.§ 4143P. under different credit lines or loan contracts. on their request. are past due pursuant to Secs.1 07. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate department of the SES of such directors’/trustees' election/reelection. (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with the institution where he/she is a director/trustee or officer. “(ii)” and “(iv)”. association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items “(i)”. of the board of directors/trustees during their incumbency. (b) Obligations shall include all borrowings from any FI obtained by: (i) A director/trustee or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor. (ii) The spouse or child under the parental authority of the director/trustee or officer.12. (iv) A partnership of which a director/ trustee or officer. 12.1 and 4143P. executive vice president or any position of equivalent rank. Grounds for disqualification made known to the institution shall be reported to the appropriate department of the SES of the BSP within seventy-two (72) hours from knowledge thereof. d. the director/ trustee or officer concerned shall be notified in writing either by personal service or through registered mail with registry return receipt card at his/her last known address by the appropriate department of the SES of the existence of the ground for his/her disqualification and shall be allowed to submit within fifteen (15) calendar days from receipt of such notice an explanation on why he/she should not be disqualified and included in the watchlisted file. b. If no reply has been received from the director/trustee/officer concerned upon the expiration of the period prescribed under Item “b” above. said failure to reply Manual of Regulations for Non-Bank Financial Institutions . On the basis of knowledge and evidence on the existence of any of the grounds for disqualification mentioned in Subsecs. The disqualifications for directors/ trustees mentioned in Subsec. this shall be without prejudice to the authority of the Monetary Board to disqualify a director/trustee/officer/employee from being elected/appointed as director/ trustee/officer in any FI under the supervision of the BSP. The director/trustee/officer concerned shall be afforded the opportunity to defend/clear himself/herself. rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of a director/trustee/officer. or accountant of a branch or office of a pawnshop is disqualified from holding or being appointed to any of said positions in the same branch or office.1 shall likewise apply to officers. (As amended by Circular No. While the concerned institution may conduct its own investigation and impose appropriate sanction/s as are allowable. president. cashier. court.2 Persons disqualified to become officers a. (8) Those under preventive suspension.3 Disqualification procedures a. Upon receipt of the reply/ explanation of the director/trustee/officer concerned. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity.§§ 4143P. police. except those stated in Item “b(2)”. 4143P. b. and (9) Persons with derogatory records with the NBI. the appropriate department of the SES shall proceed to evaluate the case. 4143P. together with the evidence in support of his/ her position.4143P.3 07. c. chief cashier or chief accountant is disqualified from holding or being elected or appointed to any of said positions in the same pawnshop and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of manager. Interpol and monetary authority (central bank) of other countries (for foreign directors/trustees and officers) involving violation of any law. 584 dated 28 September 2007) § 4143P. treasurer.2. general manager. the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of chairman.31 time they were officially advised by the appropriate department of the SES of their disqualification. The head of said department may allow an extension on meritorious ground. § 4143P.Page 6 responsible for determining the existence of the ground for disqualification of the institution’s director/trustee/officer or employee and for reporting the same to the BSP. Except as may be authorized by the Monetary Board or the Governor.1 . The board of directors/trustees and management of every institution shall be P Regulations Part I . The evaluation of the case shall be made for the purpose of determining if disqualification would be appropriate and not for the purpose of passing judgment on the findings and decision of the entity concerned. the concerned department of the SES shall recommend to the Monetary Board his/ her delisting from the masterlist of temporarily disqualified persons and his/ her inclusion in the masterlist of permanently disqualified persons. the appropriate department of the SES shall recommend to the Monetary Board his/her delisting. The appropriate department of the SES may decide to recommend to the Monetary Board a penalty lower than disqualification (e. if the director/trustee/officer concerned is found to be responsible for the closure of the institution. The board of directors/trustees of the concerned institution shall be immediately informed of cases of disqualification approved by the Monetary Board and shall be directed to act thereon not later than the following board meeting. All other cases of disqualification. f.. g. in its judgment the act committed or omitted by the director/trustees/officer concerned does not warrant disqualification.31 shall be deemed a waiver and the appropriate department of the SES shall proceed to evaluate the case based on available records/evidence. as much as practicable.) if. “b”. suspension. Directors/ trustees/officers with pending cases/ complaints shall also be included in said masterlist of temporarily disqualified persons upon approval by the Monetary Board until the final resolution of their cases.3 07.§ 4143P. If the director/trustees/officer is cleared from involvement in any irregularity. When there is evidence that a director/trustees/officer has committed irregularity. h. the appropriate department of the SES shall.g.12. j. restore it to its current status or. i. If the disqualification is based on dismissal from employment for cause. For directors/trustees/officers of closed banks. the appropriate department of the SES shall make recommendation to the Monetary Board that his/her case be referred to the OSI for further investigation and that he/she be included in the masterlist of temporarily disqualified persons until the final resolution of his/her case. at his/her last known address of his/her disqualification from being elected/ appointed as director/trustee/officer in any FI under the supervision of BSP and/or of his/her inclusion in the master list of watchlisted persons so disqualified. “c” and “d” above. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I . the concerned director/trustees/ officer shall be informed by the appropriate department of the SES in writing either by personal service or through registered mail with registry return receipt card. endeavor to establish the specific acts or omissions constituting the offense or the ultimate facts which resulted in the dismissal to be able to determine if the disqualification of the director/trustee/officer concerned is warranted or not. the concerned department of the SES shall make appropriate recommendation to the Monetary Board clearing said directors/trustees/officers when there is no pending case/complaint or evidence against them. e. the concerned director/trustee or officer shall be given a period of thirty (30) calendar days within which to settle said obligation or. If the ground for disqualification is delinquency in the payment of obligation. whether permanent or temporary shall be elevated to the Monetary Board for approval and shall be subject to the procedures provided in Items “a”. before the evaluation on his disqualification and watchlisting is elevated to the Monetary Board. to explain why he/she should not be disqualified and included in the watchlisted file. Upon approval by the Monetary Board. reprimand. On the other hand. etc.Page 7 . he/she would be eligible to become director/trustees or officer of any bank.6 07.NBI or other administrative agencies shall first be approved by the Monetary Board. actions or reports of the courts. or the Monetary Board. the SES shall maintain a watchlist of disqualified P Regulations Part I . The BSP will disclose information on its watchlist files only upon submission of Manual of Regulations for Non-Bank Financial Institutions . with registry return receipt card. Watchlist categories. Notification of directors/trustees/ officers/employees. except with the authority of the person concerned and with the approval of the Deputy Governor. 584 dated 28 September 2007) § 4143P. Watchlisting shall be for internal use only and may not be accessed or queried upon by outside parties including such institutions under the supervisory and regulatory powers of the BSP. To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as directors/trustee or officer of an institution under the supervisory and regulatory powers of the BSP. 4143P. Confidentiality. c.5 (Reserved) § 4143P. institutions under the supervisory and regulatory powers of the BSP. Whenever a director/trustee/officer is cleared in the process mentioned under Item “c” above or. Upon approval by the Monetary Board. QB. Watchlisting shall be categorized as follows: (1) Disqualification File “A” (Permanent) – Directors/trustees/officers/ employees permanently disqualified by the Monetary Board from holding a director/ trustee/officer position. the concerned director/ trustee/officer/employee shall be informed through registered mail.2 shall be afforded the procedural due process prescribed above. the inclusion of directors/trustees/officers/employees in watchlist disqualification files “A” and “B” on the basis of decisions. Inclusion of directors/trustees/ officers/employees in the watchlist.1 and 4143P.31 Within seventy-two (72) hours thereafter. (2) Disqualification File “B” (Temporary) – Directors/trustees/officers/ employees temporarily disqualified by the Monetary Board from holding a director/ trustee/officer position. SES. k. Upon recommendation by the appropriate department of the SES. b.3 .6 Watchlisting. Persons who are elected or appointed as director/trustees or officer in any of the BSP-supervised institutions for the first time but are subject to any of the grounds for disqualification provided for under Subsecs.4143P.Page 8 directors/trustees/officers under the following procedures: a. d.4 Effect of possession of disqualifications. the corporate secretary shall report to the Governor of the BSP through the appropriate department of the SES the action taken by the board on the director/trustee/officer involved.12. when the ground for disqualification ceases to exist. Directors/trustees/ officers elected or appointed possessing any of the disqualifications as enumerated herein. (As amended by Circular No. l.§§ 4143P. shall vacate their respective positions immediately. trust entity or any institution under the supervision of the BSP only upon prior approval by the Monetary Board. It shall be the responsibility of the appropriate department of the SES to elevate to the Monetary Board the lifting of the disqualification of the concerned director/trustee/officer and his/her delisting from the masterlist of watchlisted persons. the Governor. § 4143P. at his last known address of his inclusion in the masterlist of watchlisted persons disqualified to be a director/trustee/officer in any institution under the supervisory and regulatory powers of the BSP. through the appropriate department of the SES.31 a duly accomplished and notarized authorization from the concerned person and approval of such request by the Deputy Governor. 4151P Establishment of Branches No pawnshop shall open. authority to operate such branch which shall be processed in accordance with the following guidelines. Pawnshops can gain access to information in the said watchlist for the sole purpose of screening their applicants for hiring and/or confirming their elected directors/trustees and appointed officers. in which case the director/trustee/officer/employee is relisted to Watchlist – Disqualification File “A” (Permanent).2 Operations and functions The operations/transactions of a branch office shall likewise be governed by the provisions of P. or (c) Upon favorable decision or clearance by the appropriate body.3 07. SES or the Governor or the Monetary Board. The primary purpose of branching shall be to provide an additional source of credit to small borrowers left unserved by the banking and other FIs.4151P.1 Definition of term. i. § 4151P. As used in these rules the term branch office shall include any place of business outside the main office of a pawnshop. Directors/trustees/officers/employees delisted from the Watchlist – Disqualification File “B” other than those upgraded to Watchlist – Disqualification File “A” shall be eligible for re-employment with any institution under the supervisory and regulatory powers of the BSP.e. (b) When the conviction by the court for crimes involving dishonesty. § 4151P.. 114 governing operations/transactions of a head office.3 Basis for establishment Branch offices shall be allowed on the basis of the head office’s ability to conduct operations. as well as correspondent arrangements. (As amended by CL-2007-001 dated 04 January 2007 and CL-2006-046 dated 21 December 2006) Secs. Delisting. BRANCHES AND OTHER OFFICES Sec. court. The appropriate department of the SES shall not process an application for branching of a pawnshop Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I .4150P (Reserved) H. institutions under the supervisory and regulatory powers of the BSP. Pawnshops must obtain the said authorization on an individual basis. breach of trust and/or violation of banking laws becomes final and executory. NBI. § 4151P. as well as by other pertinent laws. BSP rules and regulations. maintain or operate a branch office without first applying for and obtaining from the BSP. e.6 . No. where pawnshop operations or transactions or any phase thereof are conducted by said pawnshop under the control and supervision of a head or main office.Disqualification File “B” (Temporary) (a) After the lapse of the specific period of disqualification. or such other agency/body where the concerned individual had derogatory record.§§ 4143P. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist . All delistings shall be approved by the Monetary Board upon recommendation of the appropriate department of the SES except in cases of persons known to be dead where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. The prescribed authorization form to be submitted to the concerned department of the SES is in Appendix Q-45. 4144P .12.Page 9 .D. or document for at least three (3) years from the date thereof. The books of final entry shall consist of the general ledger. Bank certification on paid-in capital deposit. BUSINESS DAYS AND HOURS Sec. § 4151P. They may.4155P (Reserved) I. etc. Additional paid-in capital of P100. The accounting records of pawnshops shall consist of records of original entry and books of final entry. c. facilities (such as vault). Exemption from the above requirement shall be granted to pawnshops in troubled areas after due evaluation of their requests.4161P 05. Bio-data of the proposed manager and accountable employees. (b) said register is with a permanent binding. for a minimum of six (6) hours a day. Manual of Regulations for Non-Bank Financial Institutions . both to be selected by them.12. No pawnbroker or other persons shall alter or erase any entry made in the registers of a pawnshop. Information on branch location. permission to open a maximum of one (1) branch may be granted.000. Special public holidays proclaimed for local government shall be regular working days.5 Documentary requirements The following documents shall be filed with the appropriate department of the SES of the BSP in connection with an application to operate a branch: a. 4152P . 4161P Records.4 Capital requirement. remain open beyond the above requirement for as long as they deem it necessary.4160P (Reserved) J. The Chart of Accounts and Description of Loan Registers of Pawnshops provided in Appendix P-1 shall be followed. That (a) it contains spaces and columns adequate to substantially reflect the data required by the BSP. book. The records of original entry shall consist of pawn tickets. No pawnshop shall destroy or dispose of any record. 4157P .Upon compliance with the minimum paid-in capital of P100. d. Business and/or economic justification (including data) for the establishment of the branch. RECORDS AND REPORTS Sec. and e. official receipts. Secs. Pawnshops may use any form of register: Provided.000 shall be required for each additional branch.6 Date of opening for business. and (c) no register with loose leaves or detachable pages shall be allowed. The business hours and business days shall be posted conspicuously at all times at the door of the pawnshop.31 which has an approved but unopened branch. Secs.3 . the authority is automatically revoked.§§ 4151P. 4156P Business Days and Hours Pawnshops shall transact business at a minimum of five (5) days a week. at their P Regulations Part I . bonding and insurance. § 4151P. ledger.Page 10 discretion. otherwise. § 4151P. The accounting period of all pawnshops shall be on the calendar year basis. subsidiary ledgers and registers of loans extended and loans paid. Certified true copy of the board resolution authorizing the establishment of the branch (in case of corporation). b. subject to the provisions of the rules on branching. vouchers and other supporting documents. A branch office shall open for business within six (6) months from receipt of its authority to operate said branch. FIs shall be required to meet the BSP recommended valuation reserves. (As amended by Circular No. Accounting treatment for prudential reporting. Government grants extended in the form of loans bearing nil or low interest rates shall be measured upon initial recognition at its fair value (i.1 .Page 11 . in cases where there are differences between BSP regulations and PFRS/PAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the PFRS/ PAS. b. Financial/non-financial allied/non-allied associates shall be accounted for using the equity method in accordance with the provisions of PAS 28 “Investments in Associates”. For prudential reporting. BSP. Pawnshops shall strictly adopt/ implement the Uniform System of Accounts prescribed for pawnshops in the recording of daily transactions including reportorial requirements. In preparing consolidated financial statements. For purposes hereof. For purposes of preparing separate financial statements. “b” and “c”. the present value of the future cash flows of the financial instrument discounted using the market interest rate). Pawnshops shall submit to the appropriate department of the SES of the BSP the reports listed in Appendix P-2 in the forms as may be prescribed by the Deputy Governor. the option or limit prescribed by BSP regulations shall be adopted by all banks/ FIs. Any change in.4162P 07. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I . only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated on a lineby-line basis. 4162P Reports. Pawnshops shall adopt the PFRS and PAS which are in accordance with generally accepted accounting principles in recording transactions and in the preparation of financial statements and reports to BSP. the audited annual financial statements required to be submitted to the BSP in accordance with Appendix P-2 shall in all respect be PFRS/ PAS compliant: Provided. and c. It is in this light that the BSP aims to adopt all PFRS and PAS issued by the ASC to the greatest extent possible.12. which shall be amortized over the term of the loan using the effective interest method. shall also be accounted for using the equity method. the articles of incorporation/co-partnership.§§ 4161P. § 4161P. or amendment to. The difference between the fair value and the net proceeds of the loan shall be recorded under “Unearned Income-Others”. financial/non-financial allied/non-allied subsidiaries/associates.1 Uniform System of Accounts. SES. Notwithstanding the exceptions in Items “a”.2 Philippine Financial Reporting Standards/Philippine Accounting Standards Statement of policy. including insurance subsidiaries/associates.31 § 4161P. the PFRS/PAS shall refer to issuances of the ASC and approved by the PRC. That FIs shall submit to the BSP adjusting entries reconciling the balances in the financial statements for prudential reporting with that in the audited annual financial statements. Pawnshops that adopted an accounting treatment other than the foregoing shall consider the adjustment as a change in accounting policy. The provisions on government grants shall be applied retroactively to all outstanding government grants received. However. which shall be accounted for in accordance with PAS 8.. transparency and accuracy in financial reporting. FIs shall adopt in all respect the PFRS and PAS except as follows: a. while insurance and nonfinancial allied subsidiaries shall be accounted for using the equity method.e. It is the policy of the BSP to promote fairness. 572 dated 22 June 2007) Sec. Any false statement which tends to favor the pawnshop submitting the report shall be prima facie evidence of intent to deceive or mislead.4162P. Pawnshops incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: Manual of Regulations for Non-Bank Financial Institutions . Reports submitted in computer media shall be subject to the same requirements.3 Sanctions a. and M-2007-028 dated 24 September 2007) § 4162P. Appendix P-3 prescribes the signatories for each report category and the requirements on signatory authorization. Reports required to be submitted to the BSP are classified into Categories A-1.31 by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation. (5) Repeated violation shall mean the commission of the same offense for at least two (2) times. The submission of the reports shall be effected by filing them personally with the appropriate department of the SES or with the BSP Regional Offices/Units. A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix P-2.2 Manner of filing. CL-2007-050 dated 04 October 2007. c. with intent to deceive or mislead. (6) Persistent violation shall mean the commission of the same offense for at least three (3) times. shall not be considered as willful delay.12. such as fire and other natural calamities and public disorders. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having submitted. (As amended by CL-2007-059 dated 28 November 2007. unless otherwise specified in the circular or memorandum of the BSP. the following definitions shall apply: (1) Report shall refer to any report or statement required of a pawnshop to be submitted to the BSP periodically or within a specified period. including strike or lockout affecting a pawnshop as defined in the Labor Code or a national emergency affecting operations of pawnshops. § 4162P. or making of false statements in reports. Any pawnshop which submits a faulty report shall pay to the BSP a fine of P30 per day which shall accrue beginning on the sixth business day from the day the written notice of faulty report is received by the pawnshop concerned until a correct report is submitted. (7) Offense shall refer to submission of faulty report. (4) False Statement shall refer to any untruthful data or information or falsehoods made in a report to the BSP or its authorized agents. or by sending them by registered mail or special delivery through private couriers. (3) Willful delay or default in the submission of reports shall refer to the failure of a pawnshop to submit a report on time. by-laws or material document to the appropriate department of the SES within fifteen (15) days following such change. P Regulations Part I .§§ 4162P . b.1 Categories of and signatories to reports. A-2. Failure to submit a report on time due to fortuitous events. § 4162P. willful delay in submission of reports. Fine for submission of faulty report. Definition of terms.3 07. Fines for willful delay in submission of reports.Page 12 (2) Faulty report shall refer to an inaccurate/improperly accomplished report. For purposes of these rules. as determined by that department based on the pawnshop’s Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I . 114. The due date/deadline for submission of reports to BSP as prescribed under Sec.31 I. Any pawnshop which makes a false statement in any of its reports to the BSP or its authorized agents shall pay to the BSP a fine in accordance with the following schedule: (1) On the first and second offense.12. For Categories A-1. Failure of a pawnshop to effect the settlement of the full amount of the fine within a period of fifteen (15) days from receipt of the bill shall subject it to other administrative sanctions and/or to the penal provisions of P. g. Payment of the penalties by installments (1) The head of the appropriate department of the SES may approve requests for payment of penalties by installments: Provided. e.D. A-2 and A-3 reports Per day of default P 90 until the report is filed II. etc. shall be considered as the date of filing.3 07. No. after due hearing. Appeal to the Monetary Board. of the pawnshop's directors/officers/ proprietor/ managing partner Any false statement made in a previous report which was not immediately known but was discovered only in later reports shall constitute only one (1) violation.§ 4162P. Delayed schedules or attachments and amendments shall be considered late reporting subject to the above penalties. 4162P governing the frequency and deadlines indicated in Appendix P-2 shall be automatically moved to the next banking day whenever a half-day suspension of business operations in government offices is declared due to an emergency such as typhoon. delay or default shall start to run on the day following the next working day. The penalty shall operate on the sixth working day counted from receipt of notice of submission of a false statement from the BSP or its authorized agents until a correct statement is submitted. A pawnshop shall be billed by the appropriate department of the SES. Manner of collection and payment of fines. floods. The pawnshop shall thereupon remit the amount of the fine to the BSP thru the appropriate department of the SES. a fine payable on the day following the receipt of BSP advice P300 and P60 for every day of delay in payment until the fine is fully paid (2) On repeated violations (3) On persistent violations P600 and P120 for every day of delay in payment until the fine is fully paid Suspension. For Category B reports Per day of default P 30 until the report is filed Delay or default shall start to run on the day following the last day required for the submission of reports.Page 13 . For the purpose of establishing delay or default. That the pawnshop’s cash position is not sufficient to pay the penalty in full. f. as the case may be. the date of acknowledgment by the appropriate department of the SES or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted or the date of mailing postmarked on the envelope or the date of registry or special delivery receipt. Fines for making false statements. should the last day of filing fall on a non-working day in the locality where the reporting pawnshop is situated. d. A pawnshop may appeal to the Monetary Board a ruling of the appropriate department of the SES imposing any penalty prescribed herein. However. Page 14 Manual of Regulations for Non-Bank Financial Institutions .001 . or transact in any manner the business of a pawnshop without having first complied with the provisions of P. 4182P Closing or Transfer of Business No pawnshop shall close or transfer its place of business within three (3) months following the maturity of any loan or pledge. or words of similar import. The request shall be made in writing.D. except those 1 which are kept inside a fireproof vault. P Regulations Part I . of Installments Two (2) equal monthly installments Three (3) equal monthly installments Four (4) equal monthly installments Six (6) equal monthly installments Eight (8) equal monthly installments Ten (10) equal monthly installments Default in payment of any installment shall render the unpaid amount payable in full. 585 dated 15 October 2007) Secs. (As amended by Circular No. 4173P . Sec. h.1. shall keep such businesses distinct and separate from the pawnshop operation.000 P1.000 P5. 4171P Safekeeping of Pawns and Records and Insurance of Office Building Pawns must be kept inside the safe or concrete vault. Secs. No person or entity shall advertise or hold itself out as being engaged in pawnshop operations or use in connection with its business title the words pawnshop. MISCELLANEOUS PROVISIONS Sec.001 and above No.12.§§ 4162P.3 . Vital records must be kept inside the safe or vault when not in use. or before any pawn shall have been sold or disposed of as provided for under existing regulations.750 P751 .4180P (Reserved) L. at the same time. Any person or entity engaged in the pawnshop business and. 4172P Separation of Pawnshop Business from Other Businesses.4170P (Reserved) K. bulky pawns may be placed outside the safe or vault but within the pawnshop premises. Notice of transfer shall be published in English and in Pilipino or in the local dialect in two (2) daily newspapers of general circulation in the city or municipality where the pawnshop is closing business. 053 dated 21 August 2008 and 007 dated 05 February 2008) Sec. must be insured against fire. (As amended by CL Nos. engaged in other businesses not directly related nor incidental to the business of a pawnshop. pawnbrokerage.5.31 latest statement of condition duly certified by its president/manager/proprietor/ managing partner. 4163P . No. 4181P Business Name1. however. (2) The maximum number of installment payments shall be in accordance with the following schedule: Amount of Penalty P500 and below P501 . as the case may be.000 P2. Any pawnshop may transfer its place of business from one location to another within the territorial limits of the city or municipality upon compliance with the following requirements: a. The office building/premises and all pawns of the pawnshop. pawnbroker. INTERNAL CONTROL Sec.4182P 08. 114 and of these regulations.001 . The appropriate department of the SES shall refuse registration of new pawnshops the owner(s) of which owned another pawnshop which closed or ceased operations without paying previously assessed penalties. 5 dated 17 July 2008 and 14 dated 24 October 2000.2. and See SEC Circular Nos. Other pawnshop records/documents may be placed in filing cabinets/shelves outside the vault or safe but within the pawnshop premises. and c. 548 dated 25 September 2006 and 543 dated 08 September 2006) Sec. The framework for the enforcement of prompt corrective action (PCA) on banks which is in Appendix Q-40. the publication shall be complied with by posting notices at the city hall or municipal building of the city or municipality where the pawnshop has its place of business. monitor and control risks. The notice shall be published for at least three (3) consecutive days. shall govern the PCA taken on pawnshops to the extent applicable.4189P (Reserved) Sec. The BSP is aware of the increasing diversity of financial products and that industry techniques for measuring and managing market risk are continuously evolving.Page 15 . 4183P . on how QBs should identify. (Circular No.12. 4191P (Reserved) Sec. (2) Address of the premises to be vacated. (Circular No. (As amended by Circular Nos. As such. monitor and control risks shall govern the supervision by risks of pawnshops to the extent applicable. The rules on outsourcing of banking functions as shown in Appendix Q-37 shall be adopted in so far as they are applicable to pawnshops. measure.§§ 4182P . The BSP will review the risks to ensure that a pawnshop’s internal risk management processes are integrated and comprehensive. All pawnshops should follow the guidance in risk management efforts. the last day of which shall be five (5) days before the actual transfer. b. complexity and range of activities undertaken by pawnshops. 544 dated 15 September 2006) (Circular No. 4194P Market Risk Management The guidelines on market risk management for QBs as shown in Appendix Q-43 shall govern the market risk management of pawnshops to the extent applicable. Market risk should be reviewed together with other risks to determine overall risk profile. Secs. 4193P Supervision by Risks. 4190P Duties and Responsibilities of Pawnshops and their Directors/ Officers in All Cases of Outsourcing of Pawnshop Functions. 4195P Liquidity Risk Management The guidelines on liquidity risk management for QBs as shown in Appendix Q-44 shall govern the liquidity Manual of Regulations for Non-Bank Financial Institutions P Regulations Part I . The guidelines on supervision by risk in Appendix Q-42 which provide guidance Sec. the guidelines are intended for general application. Pawnshops are expected to have an integrated approach to risk management to identify measure. specific application will depend to some extent on the size. 523 dated 31 March 2006) Sec. and (3) Address of the premises to which the pawnshop intends to transfer. 596 dated 11 January 2008. 4192P Prompt Corrective Action Framework. 510 dated 03 February 2006) Sec. or by analogy. The guidelines set forth the expectations of the BSP with respect to the management of market risk and are intended to provide more consistency in how the risk-focused supervision is applied to this risk.31 posted in a conspicuous place in the premises to be vacated and to be transferred to. Notice shall contain the following information: (1) Date of transfer. In remote areas where newpapers are not available. The guidelines set forth the expectations of the BSP with respect to the management of risks and are intended to provide more consistency in how the risk-focused supervision function is applied to these risks. 610 dated 26 May 2008.4195P 08. Manual of Regulations for Non-Bank Financial Institutions . Pawnshops are expected to have an integrated approach to risk management to identify. 114.4198P (Reserved) Sec. 545 dated 15 September 2006) Secs.§§ 4195P .Page 16 These guidelines are intended for general application. No. 4196P . Any violation of the provisions of this Part shall be subject to Section 18 of P.4199P 06.12. (Circular No. Liquidity risk should be reviewed together with other risks to determine overall risk profile.31 risk management of pawnshops to the extent applicable. monitor and control risks. The guidelines set forth the expectations of the BSP with respect to the management of liquidity risk and are intended to provide more consistency in how the risk-focused supervision function is applied to this risk. specific application will depend on the size and sophistication of a particular pawnshop and the nature and complexity of its activities. 4199P General Provision on Sanctions. P Regulations Part I . measure.D. 4287P – 4298P (Reseved) Section 4286P Borrowings Constituting Quasi-Banking Functions.12. – J. 4299P General Provision on Sanctions. shall be subject to prior BSP authority on performance of quasi-banking functions under BSP regulations. Borrowing from twenty (20) or more lenders for the purpose of relending or purchase of receivables or other obligations.3.Page 1 . No.§§ 4201P . 4201P – 4285P (Reserved) banking functions as defined in Subsec. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part II .4299P 05. 4101P.31 PART TWO BORROWING OPERATIONS A. K. which constitutes quasi- Sec.A. (RESERVED) Secs. Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R. 7653. OTHER BORROWINGS Secs. LOANS IN GENERAL Section 4301P Loan Limits. Interest income on past due loan arising from discount amortization (and not from the contractual interest of the account) shall be accrued as provided in PAS 39. or similar weapons. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part III . 494 dated 20 September 2005) Sec. 4303P Past Due Accounts. 4302P Interest and Other Charges The rate of interest. such as guns.12. Only personal property that is capable of being physically delivered to the control and possession of the pawnshop shall be accepted as security for loans. Renewal/ Redemption of Pawns. b. 4322P Pawn Ticket. 4306P . The amount of interest due and payable after the maturity date of the loan shall be computed upon redemption based on the sum of the principal loan and interest earned as of the date of maturity. The procedures to be followed in case the pawner fails to redeem his pawn are prescribed in Sec. Sec.§§ 4301P . 4305P Interest Accrual on Past Due Loans. knives. shall not be accepted by pawnshops as security for loans. or regulations. subject to the same conditions as are provided in this Part for new loans. A loan may be renewed for such amount and period as may be agreed upon between the pawnshop and the pawner. on any loan or forbearance of money extended by a pawnshop shall not be subject to any ceiling. Amount of the principal loan. A pawner who fails to pay or renew his obligation with a pawnshop on the date it falls due shall have ninety (90) days from the date of maturity of the loan within which to redeem the pawn by paying the principal amount of the loan plus the amount of interest that shall have accrued thereon. 4323P. Pawnshops shall at the time of the loan. (Circular No. Pawnshops may grant such amount of loans as may be agreed upon between the parties: Provided.Page 1 . No pawnshop shall collect interest on loans in advance for a period of more than one (1) year. deliver to each pawner a pawn ticket which shall contain the following: a. That the amount of a loan shall in no case be less than thirty percent (30%) of the appraised value of the security offered for the loan. premiums.4320P (Reserved) B. 4304P (Reserved) Sec. Certain specified chattels. fees and other charges. Sec. decrees. Pawnshops shall not under-appraise the security offered for the loan for the purpose of defeating the restriction prescribed by this Section. Sec.4322P 06. unless the pawner manifests in writing that he is applying for a lesser amount. whose reception in pawn is expressly prohibited by other laws. Date the loan is granted.31 PART THREE LOANS AND INVESTMENTS A. 4321P Kinds of Security. c. including commissions. Sec. SECURED LOANS Sec. Name and residence of the pawner. 4323P Reminder to Pawner. Any pawnshop which violates or fails to comply with the requirements of Subsec. Date and hour of the auction sale. The first copy shall contain the word "Original" and the second copy shall be marked "Duplicate". Any public place within the territorial limits of the municipality or city where the pawnshop conducts its business.4324P 05. § 4322P. Notice to the Public. Sec. prescribed for pawnshops pursuant to the requirements of P. and j. Pawn tickets shall be serially numbered. the pawner fails to redeem his pawn. or officer-in-charge of the pawnshop responsible for the violation or noncompliance shall be jointly liable with the pawnshop. 4303P. Period of maturity. 114. P Regulations Part III . the pawnshop shall duly notify the pawner in writing that the pawn shall be sold or otherwise disposed of in the event that the pawner fails to redeem the pawn within the ninety (90)-day grace period. e. Such other terms and conditions as may be agreed upon between the pawnshop and the pawner. six (6) days prior to the date set for the public auction. Name and address of the owner of the pawnshop. If upon the expiration of the ninety (90)-day grace period. Pawn tickets shall at least be in duplicate. h. g. The notice shall be in English and in Pilipino or in the local dialect and shall contain the following: a.31 d. No pawnshop shall sell or otherwise dispose of any article or thing received as security for a loan except by public auction at any of the following places: a. The auction shall be conducted under the control and direction of a duly licensed Manual of Regulations for Non-Bank Financial Institutions . hour and place where the sale shall take place. 4322P.2 Sanctions. In remote areas where newspapers are neither published nor circulated. manager. and the terms and conditions on the reverse side thereof.1 shall pay a fine of P500 and shall be liable for such other administrative sanctions as the BSP may impose.1 Contents of pawn ticket The contents of the face of the standard pawn ticket. f. § 4322P. and b. Signature of the pawnshop's authorized representative. Signature or thumbmark of the pawner or his authorized representative. the pawnshop may sell or dispose of the pawn only after it has published a notice of public auction of unredeemed articles held as security for loans in at least two (2) newspapers circulated in the city or municipality where the pawnshop has its place of business.12. Pawnshops may choose the color and quality of the paper used as pawn ticket. No.D. Additional terms and conditions which pawnshops may wish to incorporate shall be subject to prior approval by the appropriate department of the SES. Pawn tickets shall not be smaller than 8" x 5". are prescribed in Appendices P-4 and P-4-a. 4324P Public Auction of Pawns. Expiry date of redemption period. Interest rate in percent.§§ 4322P . Description of the pawn. i. specifying in the same notification the date. On or before the expiration of the ninety (90)-day grace period allowed in Sec. the publication shall be complied with by posting notices at the city hall or municipal building of the city or municipality and in two (2) other conspicuous public places where the pawnshop has its place of business. or b. The owner.Page 2 Sec. partner. Suplusage data shall be avoided. Pawnshop's place of business. MISCELLANEOUS Secs.12.J. Sècs.4399P 05. 4325P . . The Auction Sheet/Book containing entries of auctioned pawned articles duly signed by the auctioneer or notary public under oath shall be maintained by the pawnshop. In cities and municipalities where there is no duly licensed auctioneer.4398P (Reserved) Sec. (RESERVED) Secs.4335P (Reserved) C.4395P (Reserved) K. the public auction may be conducted by a notary public of the city or province where the pawnshop has its place of business. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part III .Page 3 . 4336P .D.§§ 4324P . 4399P General Provisions on Sanctions. 114. No. Any violation of the provisions of this Part shall be subject to Section 18 of P.31 auctioneer. 4396P . 4401P .Page 1 .31 PART FOUR Sections.4499P 05.12.§§ 4401P .4499P (Reserved) Manual of Regulations for Non-Bank Financial Institutions P Regulations Part IV . 12.§§ 4501P .4599P (Reserved) Manual of Regulations for Non-Bank Financial Institutions P Regulations Part V .4599P 05. 4501P .31 PART FIVE Sections.Page 1 . their trustees and/or officers and the payment of such penalties or fines and other charges by pawnshops. and orders of the Governor which cannot be corrected/rectified by subsequent acts or transactions. b.4601P. (3) Continuing penalty refers to the monetary penalty imposed on continuing offenses/violations on a per calendar day basis reckoned from the time the offense/ violation occurred or was committed until the same was corrected/rectified. their directors and/or officers. “per day” and/or “a day” as used in this Manual. c. Payment of penalties or fines.§§ 4601P . “per business day”. For purposes of the imposition of monetary penalties. They shall be meted with one (1)-time monetary penalty on a per transaction basis.31 PART SIX MISCELLANEOUS A.1 Guidelines on the imposition of monetary penalties. and orders of the Governor which persist from the time the particular acts were committed or omitted or the transactions were entered into until the same were corrected/rectified by subsequent acts or transactions. BSP rules and regulations. For this purpose the terms “per banking day”. 585 dated 15 October 2007) §4601P. Monetary Board directives. Additional charge for late payment of monetary penalty. said penalty shall already be subject to an additional charge Manual of Regulations for Non-Bank Financial Institutions P Regulations Part VI . BSP rules and regulations. If the balance of the concerned pawnshop’s DDA is insufficient to cover the amount of the penalty. The following are the guidelines on the imposition of monetary penalties on pawnshops. They shall be penalized on a per calendar day basis from the time the acts were committed/omitted or the transactions were effected up to the time they were corrected/rectified. Basis for the computation of the period or duration of penalty. (Circular No. its directors and/or officers shall become due and payable fifteen (15) calendar days from receipt of the Statement of Account from the BSP. a. Definition of terms. (2) Transactional offenses/violations are acts. The following regulations shall govern imposition of monetary penalties on pawnshops. (4) Transactional penalty refers to a one (1)-time penalty imposed on a transactional offense/violation. OTHER OPERATIONS Sec. the following definitions are adopted: (1) Continuing offenses/violations are acts. penalties which remain unpaid after the lapse of the fifteen-day period shall be automatically debited against their corresponding DDA on the following business day without additional charge. The computation of the period or duration of all penalties shall be based on calendar days. in violation of laws. Monetary Board directives. and other BSP rules and regulations shall mean “per calendar day” and/or “calendar day” as the case may be. Late payment of monetary penalty shall be subject to an additional charge of six percent (6%) per annum to be computed from the time said penalty becomes due and payable up to the time of actual payment. omissions or transactions entered into in violation of laws. 4601P Fines and Other Charges. For pawnshops which maintain DDA with the BSP.1 07. omissions or transactions entered into.Page 1 .12. The penalty approved by the Governor/MB to be imposed on the pawnshop. D. Institutions. The running of the penalty period in case of continuing penalty and/or the period for computing additional charge shall be interrupted from the time the appeal or request for reconsideration was received by the appropriate department of the SES up to the time that the notice of the Monetary Board decision was received by the pawnshop/individual concerned.1 . Said official and his duly designated representatives may administer oaths to any director. Sec. No. and punish the persons responsible. or investigation of books. If. No. inspection. 585 dated 15 October 2007) Sec. known as the Pawnshop Regulation Act. 4652P Basic Law Governing Pawnshops. administration. SUNDRY PROVISIONS Section 4651P Supervisory Powers of the Bangko Sentral. 4657P Batas Pambansa Blg.4656P (Reserved) Secs. In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they Manual of Regulations for Non-Bank Financial Institutions .” (Circular No. the official or his deputies shall establish that the pawnshop is violating or is not complying with the requirements of P. Other Fixed Assets. and the Monetary Board shall take appropriate actions to stop such violation or non-compliance.4657P 07. The appeal or request for reconsideration on the monetary penalty approved by the Governor/Monetary Board shall be elevated to the Monetary Board for resolution/decision. and financial condition of any pawnshop. That the same is filed with the appropriate department of the SES within fifteen (15) calendar days from receipt of the Statement of Account/billing letter. furniture. 114 and of the provisions of other pertinent rules and regulations. 4602P .D. regulates the establishment and operation of pawnshops.§§ 4601P.12. 494 dated 20 September 2005) 4654P . officer.4650P (Reserved) B. or employee of the pawnshop. its directors and/or officers shall be allowed: Provided. A one (1)-time appeal or request for reconsideration on the monetary penalty approved by the Governor/Monetary Board to be imposed on the pawnshop. 114. (Circular No. Appeal or request for reconsideration. Plant and Equipment. Pawnshop premises. 4653P Accounting for Pawnshop Premises. or investigation.D.Page 2 records. d. inspection. 344 – An Act to Enhance the Mobility of Disabled Persons by Requiring Certain Buildings. P Regulations Part VI . said official shall immediately inform the Monetary Board of his findings and recommendations. P. The head of the appropriate department of the SES and his duly designated representatives are authorized to conduct an examination.31 of six percent (6%) per annum to be reckoned from the business day immediately following the end of said fifteen (15)-day period up to the day of actual payment. 114. business affairs. fixture and equipment shall be accounted for using the cost model under PAS 16 “Property. Establishments and Public Utilities to Install Facilities and Other Devices. Sec. The appropriate department of the SES shall evaluate the appeal or request for reconsideration of the pawnshop/individual and make recommendations thereon within thirty (30) calendar days from receipt thereof. No. and other pertinent rules and regulations. whenever said official deems it necessary for the effective implementation of P. upon such examination. NBFIs under BSP supervision. b. 612 dated 13 June 2008) Manual of Regulations for Non-Bank Financial Institutions P Regulations Part VI . e. educational institutions. no license or permit for the construction. 534 dated 26 June 2006) Secs. railings and the like. consistent with sound practices. deepening the financial literacy of consumers.4690P (Reserved) Sec. Exchange rate – rate of conversion from foreign currency to local currency. shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building. Exchange rate differential/spread foreign exchange mark-up or the difference between the prevailing BSP reference/guiding rate and the exchange/ conversion rate. 9160. public parking places.exact amount of money the recipient should receive in local currency or foreign currency. enhancing access to formal remittance channels in the source and destination countries. otherwise known as the “Anti-Money Laundering Act of 2001” and its Revised IRRs in Appendix P-6 and those in Appendix P-5. if any. Amount/currency paid out in the recipient country . shopping centers or establishments. trust entities. airports. Transfer/remittance fee – charge for processing/sending the remittance from the country of origin to the country of destination and/or charge for receiving the remittance at the country of destination. d.delivery period of remittance to beneficiary stated in number of days. peso-dollar rate. Other related charges e. establishment or public utility. all such existing buildings. such architectural facilities or structural features as shall reasonably enhance the mobility of disabled persons such as sidewalks. Banks.Page 3 . postage. 4660P Disclosure of Remittance Charges and Other Relevant Information It is the policy of the BSP to promote the efficient delivery of competitively-priced remittance services by banks and other remittance service providers by promoting competition and the use of innovative payment systems. public utilities.g. establishments. Other currency conversion charges commissions or service fees. including FXDs/MCs and RAs. Delivery time to recipients/ beneficiaries .12. institutions. and improving transparency in remittance transactions. 4691P Anti-Money Laundering Regulations. Towards this end. workplaces. otherwise known as “covered institutions” shall comply with the provisions of R.4691P 08. No. strengthening the financial infrastructure. 4658P . If feasible. and g.§§ 4657P .4659P (Reserved) Sec. the following minimum items of information regarding remittance transactions. c. f. pawnshops. NSSLAs. or public utilities may be renovated or altered to enable the disabled persons to have access to them. providing overseas remittance services shall disclose to the remittance sender and to the recipient/beneficiary. QBs. and all other institutions. repair or renovation of public and private buildings for public use... 4661P . e. ramps. as amended. OBUs.g. (Circular No. (As amended by Circular No. sports and recreation centers and complexes. Non-bank remittance service providers shall likewise post said information in their respective websites and display them prominently in conspicuous places within their premises and/or remittance/service centers. Secs. text message or telegram. as defined herein: a.A. surcharges. hours or minutes. including their subsidiaries and affiliates supervised and/or regulated by the BSP.31 live and the enjoyment of the opportunities available to other citizens. HDMF IDs) (q) Certification from the NCWDP (r) DSWD certification (s) IBP ID. (3) GOCCs. They shall require their clients to submit an updated photo and other relevant information whenever the need for it arises. the Monetary Board may. 7653. No. the term official authority shall refer to any of the following: (1) Government of the Republic of the Philippines. Without prejudice to the criminal sanctions prescribed above against the culpable persons. and (t) Company IDs issued by private entities or institutions registered with or supervised or regulated either by the BSP.A. or at the commencement of a business relationship. 7653. at the discretion of the court pursuant to Section 36 of R.A.. No. Secs. AFP. impose upon any covered institution. Valid IDs include the following: (a) Passport (b) Driver’s license (c) PRC ID (d) NBI clearance (e) Police clearance (f) Postal ID (g) Voter’s ID (h) Barangay certification (i) GSIS e-Card (j) SSS card (k) Senior Citizen card (l) OWWA ID (m) OFW ID (n) Seaman’s Book (o) Alien Certification of Registration/ Immigrant Certificate of Registration (p) Government office and GOCC ID (e. No. as well as to encourage and facilitate remittances of OFWs through the banking system: a. as amended.4691P. or of this Section. the administrative sanctions provided under Section 37 of R.g. particularly those residing in the remote areas.9 Sanctions and penalties a. Pawnshops shall require their clients to submit a clear copy of one (1) valid ID on a one-time basis only. Whenever a covered institution violates the provisions of Section 9 of R.§§ 4691P. and (4) Private entities or institutions registered with or supervised or regulated either by the BSP or SEC or IC. b. c.A. P Regulations Part VI . For this purpose. The following guidelines govern the acceptance of valid ID cards for all types of financial transactions by pawnshops. as amended. otherwise known as “The New Central Bank Act”. the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50.1 .12. 4692P . Students who are beneficiaries of remittances/fund transfers who are not yet of voting age may be allowed to present the original and submit a clear copy of one (1) valid photo-bearing school ID duly signed by the principal or head of the school. 9160.4694P (Reserved) Sec. SEC or IC.4695P 08. including financial transaction involving OFWs.8 (Reserved) § 4691P.A. Clients who engage in a financial transaction with covered institutions for the first time shall be required to present the original and submit a clear copy of at least one (1) valid photo-bearing ID document issued by an official authority. or both.000 or by imprisonment of not less than two (2) years nor more than ten (10) years. b. 4695P Valid Identification (ID) Cards for Financial Transactions. at its discretion. its directors and/or officers for any violation of Section 9 of R.Page 4 (2) Its political subdivisions and instrumentalities.31 §§ 4691P. No.000 nor more than P200. 9160.1 . in order to promote access of Filipinos to services offered by formal FIs. Manual of Regulations for Non-Bank Financial Institutions . 1. (5) Tampering or substitution of pawn. For purposes of this Section. among others. a fine of not more than P500. and/or b. partners. (6) Failure to issue official receipts for amounts collected. (3) Falsifying pawn tickets. 608 dated 20 May 2008) Secs. or for a violation which is continuing and punishable on a per-day basis. Suspension or.c of the Revised IRRs of R. a financial transaction is any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. their owners.12. as falling under the definition of transaction. removal of partners/directors or officers.A.D.4698P (Reserved) Sec. No. financial transactions may include remittances. Under the Anti-Money Laundering Act of 2001. For purposes of this Section. directors and officers for any violation of the provisions of the rules on pawnshops. 4696P . or any commission of irregularities in the conduct of its business. (4) Actual collection of interest in advance and or service charges without reflecting the same on the pawn ticket. and (7) Any other act or omission analogous to the above-enumerated acts and omissions.§§ 4695P . as amended (Appendix P-6). 4699P Administrative Sanctions. 9160.31 The foregoing shall be in addition to the customer identification requirements under Rule 9.Page 5 . the following administrative sanctions: a. (Circular No. For a violation consummated at a single instance and not punishable on a per-day basis.4699P 08. It also includes any movement of funds by any means with a covered institution. the phrase any commission of irregularities in the conduct of its business shall include any act or omission described hereunder: (1) Failure to produce pawn upon redemption or in any other case where the pawnshop has the obligation to produce the pawn. P. a fine of not more than P600 for every day of violation or non-compliance. 114. Manual of Regulations for Non-Bank Financial Institutions P Regulations Part VI . (2) Allowing the redemption of pawn without the surrender of the corresponding original pawn ticket/substitute pawn ticket/ affidavit of loss. as amended. 564 dated 03 April 2007 as amended by Circular No. The Monetary Board shall impose upon pawnshops. No. after due hearing. pertinent laws or any order or instruction of the Monetary Board or its authorized official. (f) Office equipment.pledge loans. or the sum of paid-in capital.APP. (g) Leasehold improvements. accounts receivables. accruals.Page 1 . (b) Interest on borrowed money. (c) Retained earnings. such as prepaid expenses. the following minimum data: Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-1 . P-1 05. The accounts under this group shall consist of the following: (a) Capital/capital stock. The General Ledger is the controlling record of all subsidiary ledger accounts. (b) Pledge loans. surplus or retained earnings accounts and net income for the year. (3) Capital .This account represents the "general ledger control" account for all income of the pawnshop.Liabilities represent obligations of the pawnshop.Every pawnbroker shall keep a "Loans Extended Register" in which shall be entered in ink. (c) Land. (2) Liabilities . (h) Investment in securities. advances. (b) Service charges. an accurate account and description in English. (4) Income . tax withheld. The following registers shall be maintained to trace loan transactions. (i) Stationery and/or supplies. (d) Interests on securities. (g) SSS contribution.Asset accounts shall consist of the following: (a) Cash on hand and in banks. and (j) Miscellaneous expenses.The expenses account shall include the following: (a) Salaries and allowances. (c) Rental. (b) Drawings.Capital at the end of the year is the excess of assets over liabilities. B. and (I) Other assets. (c) Gain or loss at auction sale. (1) Loans Extended Register . An "Income Subsidiary Ledger" shall be maintained and the total of this ledger shall equal the balance of "Income Control" account of the general ledger at all times. The general ledger accounts shall be grouped as follows: (1) Assets . at the time of each loan or pledge transaction. (e) Light and water. with corresponding translation in the local dialect. and (c) Other liabilities.12. such as SSS Premiums and medicare.31 CHART OF ACCOUNTS AND DESCRIPTION OF LOAN REGISTER OF PAWNSHOPS (Appendix to Sec. (d) Building. General Ledger. such as: (a) Loans payable. and (d) Net income for the year. and (e) Other income (5) Expenses . The "Income Subsidiary Ledger" shall contain the following accounts: (a) Interests . Other assets shall include all assets not included in any of the above classification. Registers. (h) Costs of telephone. 4161P) A. (b) Accounts payable. (d) Depreciation. Other liabilities are liabilities not included in the above classification. postage and/ or telegram. (f) Taxes and licenses. (e) Furniture and fixtures. (d) Rate of interest to be paid.12. Manual of Regulations for Non-Bank Financial Institutions .APP. It shall contain the following minimum data: (a) Date of payment. and P Regulations Appendix P-1 .31 (a) Date of transaction. the principal and interest payments of loans. (h) Name of pawner. (e) Service charge collected. and (iii) General appearance. (i) Address of pawner.Page 2 (k) Signature or thumbmark of the pawner and the name of the pawner written by and signature of the witness to the thumbmarking. (b) Number of pawn ticket. (2) Loans Paid Register . P-1 05. (d) Principal amount. (j) Description of the pawner. (g) Appraised value of pawn. (c) Amount of money loaned or principal.A "Loans Paid Register" shall be maintained in which shall be entered in ink. and (e) Amount of interest paid. (b) Number of pawn ticket. including: (i) Nationality. (ii) Sex. in percent. (f) Description of pawn. (c) Name of pawner. C 4162P (As amended by M-028 dated 09.Manual of Regulations for Non-Bank Financial Institutions LIST OF REPORTS REQUIRED FROM PAWNSHOPS (Appendix to Sec.1C 4161P Breakdown of Pledged Loans According to Size -do- January 31st -do- A-2 Unnumbered 4691P (Rev.03. 612 dated 06. Report Title Frequency Submission Deadline Submission Procedure A-2 BSP 7-26-02. 4162P) Category MOR Ref.ISD1 A-2 BSP 7-26-02.24.24.Page 1 1 Form No. P-2 08.08) Report on Suspicious Transactions As transaction occurs 10th business day from date of transaction/knowledge To be submitted to the Anti-Money Laundering Council A-2 Unnumbered 4691P Report on Covered Transactions -do- -do- -do- A-2 Unnumbered 4691P Certification of compliance with existing anti-money laundering regulations Annually 20th business day after end of reference year Original . May 2002 as amended by Cir.12.C 4162P (As amended M-028 dated 09.ISD1 Formerly SED V APP.07) CSIE (head office and branches) -do- -do- Original .SDC For HO. No.31 P Regulations Appendix P-2 . . schedule of listing of its branches A-2 BSP 7-26-03.07) CSOC (head office and branches) Annually on or before 31st January following end of the reference year Original . 1C 4101P.04. Formerly SED V General Information Sheet APP.2 B B Unnumbered B 1 MOR Ref.ISD1 Personal Data Sheet of Owner/Partner/Incorporator/ Director/Officer -do- - -do- Unnumbered 4162P (no prescribed form) Annual Report of Management to Stockholders Covering Results of Operations for the Previous Year Annually 31st March following end of each year Original .ISD1 B 4162P Audited Financial Statement for the Previous Year Ended Prepared by the External Auditor -do- -do- -do- B 4162P Loss/Destruction of Pawned Articles/Pawnshop Property Caused by Crimes or Fortuitous Events As incident occurs See Annex P-2-a for guidelines on reporting crimes and losses -do- 4691P Plan of action to comply with Anti-Money Laundering requirements - 30th business day from 31 July 2000 or from opening of the institution -do- Annually 30th day from date of annual stockholders' meeting Drop Box .SEC Duplicate .C 4101P.Page 2 Category .SEC Central Receiving Section Original .28.07 and CL-050 dated 10.2 Information Sheet B BSP 7-26-01.SDC Upon registration within 15th day as change/s occur/s Original . Report Title Frequency Submission Deadline Submission Procedure Manual of Regulations for Non-Bank Financial Institutions -do- 15th banking days after end of reference quarter Original .BSP A-3 Unnumbered 4162P (CL-059 dated 11.07) Report on the Borrowings of BSP Personnel B BSP 7-26-01.12.31 P Regulations Appendix P-2 . P-2 08.Form No. the original to the appropriate SED and the duplicate to the BSP Security Coordinator. shall likewise be reported to the BSP. a.APP. 2. destruction or damage to the institution's pawned articles/property/facilities. the amount involved in each crime is P20. regardless of whether or not such crimes involve the loss/destruction of pawned articles/property of the pawnshop. Pawnshops shall report on the following matters through the appropriate SED: a. That if no pawned article is involved. Crimes involving the pawnshop personnel. b. frustrated or attempted against pawned articles/property/facilities (such as robbery. forgery and other deceits) and other crimes involving loss/ destruction of pawn/property of the pawnshop: Provided. theft.31 Annex P-2-a REPORTING GUIDELINES ON CRIMES/LOSSES 1. Where a thorough investigation and evaluation of facts is necessary to complete the report. b. That if no pawned article is involved.12. P-2 05. That a complete report is submitted not later than fifteen (15) business days from termination of investigation. swindling or estafa. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident.Page 3 . even if the amount involved is less than those above specified.000 or more. thru the Director. an initial report submitted within the five (5) business day deadline may be accepted: Provided. Crimes whether consummated. The following guidelines shall be observed in the preparation and submission of the report. Security Investigation and Transport Department. the amount involved per incident is P20.000 or more. other than arising from a crime: Provided. Incidents involving material loss. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-2 . Other signatories shall be authorized by the proprietor/managing partner in a letter of authority to be submitted to the appropriate SED of the BSP indicating the names. who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex P-3-c. executive vice-presidents. 4162P.Page 1 . the reports shall be signed by the proprietor or managing partner. Likewise. the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex P-3-b. The designated signatories in this category. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate SED of the BSP within three (3) days from the date of resolution. or in his absence.1 ) Category A-1 reports shall be signed by the chief executive officer. and by the comptroller. or in his absence.12. or by officers holding equivalent positions. shall be contained in a resolution approved by the board of directors in the format prescribed in Annex P-3-a. as the case may be. P-3 05. Category A-2 reports of head offices shall be signed by the president. In the case of pawnshops organized as single proprietorship or partnership. including their specimen signatures. by the executive vice-president. Categories A-3 and B reports shall be signed by officers or their alternates. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-3 . in place of chief executive officer or president. Such reports of other offices/ units (such as branches) shall be signed by their respective managers/officers incharge. vicepresidents or officers holding equivalent positions. positions and specimen signatures of the designated signatories as well as the reports they are to sign.APP.31 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION (Appendix to Subsec. by the chief accountant. ____________ or Executive Vice-President 3. we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general. Now. by the chief accountant. in designating the officials who would sign said Category A-1 reports. and. Mr. _____ Whereas. this ____day of ____. Mr. ___________________________ CHAIRMAN OF THE BOARD ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ATTESTED BY: _______________________ CORPORATE SECRETARY P Regulations Appendix P-3 .APP. P-3 05. Comptroller and Chief Accountant. we.____________ or Chief Accountant _________________ Specimen Signature _________________ Specimen Signature _________________ Specimen Signature _________________ Specimen Signature are hereby authorized to sign Category A-1 reports of (Name of Institution) . this Board has full faith and confidence in the institution's Chief Executive Officer. Whereas. resolve. it is required under Subsec. 20____. as the case may be.1 that Category A-1 reports be signed by the chief executive officer. therefore. or by officers holding equivalent positions. are conscious that. or in his absence. or in his absence. the members of the Board of Directors.12.Page 2 Manual of Regulations for Non-Bank Financial Institutions . Mr. and by the comptroller. 4162S. Mr. therefore. Executive Vice-President. we. Whereas. as it is hereby resolved that: 1.31 Annex P-3-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS Resolution No.____________ and Comptroller 4. Done in the City of ________________ Philippines. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. the members of the Board of Directors of (Name of Institution) . Whereas. by the executive vice-president.____________ President 2. we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general. we.1 that Category A-2 reports of head offices be signed by the president. executive vice-presidents. 4162P. therefore. and that such reports of other offices be signed by the respective managers/officers-in-charge. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors. as the case may be) and.. _____________ ________________ __________ _________ are hereby authorized to sign the Category A-2 reports of (Name of Institution) . Whereas. this ____day of ____.Page 3 . are conscious that.31 Annex P-3-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS Resolution No. 20____. _____ Whereas. __________________________ CHAIRMAN OF THE BOARD ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ATTESTED BY: ________________________ CORPORATE SECRETARY Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-3 .APP. the members of the Board of Directors. resolve. therefore. etc.12. Done in the City of ________________ Philippines. vice-presidents or officers holding equivalent positions. P-3 05. Whereas. in designating the officials who would sign said Category A-2 reports. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. it is required under Subsec. the members of the Board of Directors of (Name of Institution) . we. Now. this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President. as it is hereby resolved that: Name of Officer Specimen Signature Position Title Report No. Whereas. Now. P-3 05. therefore. are hereby authorized to sign the Category A-2 reports of (Name of Institution) . Authorized (Alternate) 2.31 Annex P-3-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS Resolution No. are conscious that. as it is hereby resolved that: Name of Authorized Signatory/Alternate Specimen Signature Position Title Report 1. Authorized (Alternate) etc.Page 4 Manual of Regulations for Non-Bank Financial Institutions .1 that Categories A-3 and B reports be signed by officers or their alternates. Done in the City of ________________ Philippines. ___________________________ CHAIRMAN OF THE BOARD ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ___________________ DIRECTOR ATTESTED BY: ________________________ CORPORATE SECRETARY P Regulations Appendix P-3 . assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. we the members of the Board of Directors of (Name of Institution) . the members of the Board of Directors. we are actually empowering and authorizing said officers to represent and act for or in (Name of Institution) in general. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors. therefore.12. it is required under Subsec. 4162P. _____ Whereas.APP. Whereas. this Board has full faith and confidence in the institution's authorized signatories and. behalf of the Board of Directors in particular and Whereas. in designating the officials who would sign said Categories A-3 and B reports. this ____day of ____. 20____. Whereas. resolve. we. has pledged to this Pawnee in security for the loan article(s) described below appraised at PESOS (P ) subject to the terms and conditions stated on the reverse side hereof.1) (Name of Pawnshop) (Address of Pawnshop) Date Loan Granted: .M.12.20 Expiry Date of Redemption Period: . P-4 05.31 Serial No. STANDARD PAWN TICKET (Appendix to Subsec. 4322P. 20 Maturity Date .APP. (Description of the pawn) Principal Interest Service Charge Net Proceeds (Signature or Thumbmark) Pawner P P P P (Signature or Thumbmark) Pawnshop's Authorized Representative PAWNER IS ADVISED TO READ AND UNDERSTAND THE TERMS AND CONDITIONS ON REVERSE SIDE HEREOF Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-4 ./P./Mrs.Page 1 .A..20 Mr./Miss a resident of ) with an interest for a loan of PESOS (P of percent ( %) P. The amount of interest due and payable after the maturity date of the loan and during the redemption period shall be computed upon redemption at the same rate of interest provided in No. The interest rate stipulated herein is in accordance with the existing policy of the Monetary Board. as indicated on the face of this ticket. 9.12. the original pawn ticket thereby being deemed cancelled. the interest collected in advance shall accrue in full to the pawnshop. In case of loss or destruction of this ticket. 3.Page 1 .D. The pawner shall not be entitled to the excess of the public auction sale price over the amount of principal interest and service fee. The service charge is equivalent to one percent (1%) of the principal loan. the pawner still has ninety (90) days from maturity date within which to redeem the pawn by paying the principal loan plus the interest that shall have accrued thereon.00). No other charges shall be collected.APP. 4. the pawner hereby undertakes to personally present an affidavit to the pawnshop before the redemption period expires. or (2) issuing a substitute ticket. 6. It is hereby agreed upon that the pawnshop has a period of two (2) days within which to verify from its records before (1) indicating on the affidavit that it shall take the place of the original pawn ticket for purposes of redemption. 8. before the expiration of the ninety (90)-day grace period. 10. sell or in any other way alienate the pawn securing this loan as evidenced by the pawn ticket without prior written consent of the pawnshop and subject to the terms and conditions of this contract. that the pawn shall be sold or disposed of in the event the pawner fails to redeem the pawn within the ninety (90)-day grace period. The parties hereby agree that this ticket shall be surrendered at maturity date upon payment of the loan. Upon maturity of this loan. The pawnshop hereby agrees not to collect in advance interest for a period of more than one (1) year. 114 for a new loan. 5. In case of pre-payment of this loan by pawner. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-4-a . The pawner hereby agrees not to assign. but not exceeding five pesos (P5. The pawnshop shall send a written reminder to pawner. 2 based on the sum of the principal loan and interest earned as of the date of maturity. subject to the requirements of P. neither shall the pawnshop be entitled to recover the defeciency from the pawner. The pawner hereby accepts the pawnshop's appraisal as proper. 2. No.31 TERMS AND CONDITIONS OF STANDARD PAWN TICKET 1. P-4-a 05. 7. This loan is renewable for such amount and period as may be agreed upon between the pawnshop and the pawner. They shall maintain a system of verifying the true identity of their clients and. as well as the authority and identification of all persons purporting to act on their behalf. The provisions of existing laws to the contrary notwithstanding. No.APP. require a system of verifying their legal existence and organizational structure. which are not expressly allowed under existing law. accounts under fictitious names.A.e. whichever is earlier. in case of corporate clients. directors. anonymous accounts. performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients. 1. and all other similar accounts shall be absolutely prohibited. a. proof of incorporation. when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both. d. renting of safety deposit boxes. Covered institutions shall establish and record the true identity of its clients based on official documents. With respect to closed Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-5 . legal form.31 ANTI-MONEY LAUNDERING REGULATIONS (Appendix to Section 4691P) Banks. Said client identification may be based on official or other reliable documents and records. including information concerning the customer’s name.Page 1 . quasi-banks. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions.12. covered institutions should ensure that the client is identified in an official or other identifying documents. b. When establishing business relations or conducting transactions (particularly opening of deposit accounts. anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them. address. entering into trust and other fiduciary transactions. trust entities and all other institutions. the following measures should be taken. principal officers and provisions regulating the power behind the entity. In case of doubt as to whether their purported clients or customers are acting for themselves or for another. c. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts.. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by the covered institutions should be renewed/ updated at least every other year. reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. e. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. In case where numbered accounts is allowed (i. In cases of corporate and other legal entities. 9160 and the following rules and regulations on anti-money laundering. P-5 05. accepting deposit substitutes. Customer identification. and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R. peso and foreign currency non-checking numbered accounts). Covered institutions shall phase out within a period of one (1) year from 2 April 2001 or upon their maturity. 3. and be available to help supervisors.Page 2 Manual of Regulations for Non-Bank Financial Institutions . the findings established in writing. procedures and controls. (3) Unusual purchases of foreign exchange without visible lawful purpose. b. An audit function to test the system. 2 and 4 within thirty (30) business days from July 31. 2000 or from opening of the institution.3 of the AMLA IRRs. and all unusual patterns of transactions. g. 1. Required reporting of certain transactions. as a minimum: a.12.APP. (4) Unusual sales of foreign exchange whose sources are not satisfactorily established. shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. including the designation of compliance officers at management level. and c. as far as possible. Submission of plans of action Covered institutions shall submit a plan of action on how to comply with the requirements of App. The background and purpose of such transactions should. (2) Inward remittances without visible lawful purpose or without underlying trade transactions. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose. and adequate screening procedures to ensure high standards when hiring employees. be examined. (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities. account files and business correspondence. 2. if necessary. An ongoing employee training program. Amended by AMLC Resolution No. or should at least avoid. 9160 and/or its IRRs. especially if the wire transfers are effected through countries which are identified or connected with terrorist activities. which have no apparent or visible lawful purpose. P Regulations Appendix P-5 . unusual large transactions. without visible economic or business purpose.03 (Annex P-5-b). to the AMLC using the forms prescribed by the AMLC.3 of the AMLA IRRs. Covered institutions should not. a. auditors and law enforcement agencies. Report on suspicious transactions. Programs against money laundering. the records on customer identification. transacting business with criminals. as defined in Rules 5. should be reported to the AntiMoney Laundering Council (AMLC) in accordance with Rules 5. the transactions involving such funds or attempts to transact the same. (5) Complex. unusual large transactions. No. Special attention should be given to all complex. and (7) Suspicious Transaction Indicators or “Red Flags” as a guide in the submission to the AMLC of reports of suspicious transactions relating to potential or actual financing of terrorism. The development of internal policies. which have no apparent or visible lawful purpose. 292 dated 11.2 and 5.1 Banks shall report covered transactions and suspicious transactions.A. and all unusual patterns of transactions. evidence for prosecution of criminal behaviour. f. These programs. should include. Such records must be sufficient to permit reconstruction of individual transactions so as to provide. P-5 05.2 and 5. If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R. Programs against money laundering should be developed. P-5 nos.20.31 accounts. (a) Wire transfers between accounts. 1 4. shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith. (g) An individual receiving remittances. (d) Amount(s) involved in every transaction. companies or non-governmental organizations (NGOs) that are affiliated or related to people suspected of being connected to a terrorist group or a group that advocates violent overthrow of a government. (i) Client is under investigation by law enforcement agencies for possible involvement in terrorist activities. P-5 05. 8791 and other similar laws. (c) Date or date the transaction(s) occurred. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. consultants or associates shall not be deemed to have violated R.A. as amended.APP. (f) Deposits being made by individuals who have no known connection or relation with the account holder. companies or NGOs that are suspected as being used to pay or receive funds from revolutionary taxes. (l) The NGO does not appear to have expenses normally related to relief or humanitarian effort. but are prohibited from communicating. In case of violation thereof. R.A. no administrative. agents. (d) Value of the transaction is over and above what the client is capable of earning.31 (b) Sources and/or beneficiaries of wire transfers are citizens of countries which are identified or connected with terrorist activities. but has no family members working in the country from which the remittance is made. representative. the concerned officer. or any other information in relation thereto. covered institutions and their officers. No. R. in any manner or by any means. No. (p) Any other transaction that is similar. agent. (m) The absence of contributions from donors located within the country of origin of the NGO. (k) Transactions of individuals. b. consultant or associate of the covered institution. as amended. (n) A mismatch between the pattern and size of financial transactions on the one hand and the stated purpose and activity of the NGO on the other. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-5 . When reporting covered transactions to the AMLC. advisor. 6426. directly or indirectly. to any person the fact that a covered transaction report was made. advisors. (c) Repetitive deposits or withdrawals that cannot be explained or do not make sense. employees. (b) A brief description of the transaction or transactions. 1405. (o) Incongruities between apparent sources and amount of funds raised or moved by the NGO. representatives.Page 3 . No. (8) All other suspicious transactions/ activities which can be reported without violating any law. However. Exemption from Bank Secrecy Law. (e) Such other relevant information which can be of help to the authorities should there be an investigation.A. employee. shall be criminally liable.12. (h) Client was reported and/or mentioned in the news to be involved in terrorist activities. (e) Client is conducting a transaction that is out of the ordinary for his known business interest. criminal or civil proceedings. identical or analogous to any of the foregoing. (j) Transactions of individuals. the contents thereof. entity. The certification shall be submitted in accordance with Appendix P-2 and shall be considered a Category A-2 report. agent. electronic mail. consultants or associates are prohibited from communicating. or any other information in relation thereto. to any person. the fact that a covered transaction report was made. employees.31 whether or not such reporting results in any criminal prosecution under R. in any manner or by any means.12. consultant or associate of the covered institution. When reporting covered transactions to the AMLC.31 APP. Prohibition from disclosure of the covered transaction report. or other similar devices. P-5 05. 9160 or any other Philippine law. employee. 5. representative. Certification of compliance with anti-money laundering regulations. c. Manual of Regulations for Non-Bank Financial Institutions . or media shall be held criminally liable. P Regulations Appendix P-5 . representatives. Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification (Annex P-5-a) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations.A. the media. covered institutions and their officers. Neither may such reporting be published or aired in any manner or form by the mass media.APP. the contents thereof. In case of violation thereof. advisors.Page 4 advisor.12. agents. P-5 05. the concerned officer. directly or indirectly. No Doc. 4.APP. No. Series of 20___ Manual of Regulations for Non-Bank Financial Institutions Date/Place Issued Notary Public P Regulations Appendix P-5 . 259 and 302. _________. That we conduct regular anti-money laundering training sessions for all Pawnshop officers and selected staff members holding sensitive positions.Page 5 . 3. and continued monitoring of customer’s activities. P-5 05. as well as with BSP Circular Nos. _________. 251. affiant/s exhibiting to me their Community Tax Certificate No.12. and 5. we hereby certify: 1. _____ this ____ day of ___________. _________. No. 253. 279 dated 2 April 2001.A. (Name of President or officer of equivalent rank) (Name of Compliance Officer) SUBSCRIBED AND SWORN to before me. That the Pawnshop is complying with the required customer identification. documentation of all new clients.31 Annex P-5-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No. Page No. That the Pawnshop does not maintain anonymous or fictitious accounts. Book No. 2. That the Pawnshop is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years.(s) as follows: Name Community Tax Cert. 9160 (Anti-Money Laundering Act of 2001). That we have monitored (Name of Pawnshop)’s compliance with R. i. even if the amounts of the amortizations are less than the threshold amount. exceeds P500. in cash or non-cash. The submission of CTRs is deferred until the AMLC directs otherwise. 6. i. are however. 5. The CTR shall be filed upon payment of the first premium amount. quarterly.12. the insurance company shall file the CTR only once every year until the policy matures or rescinded. Banks shall file Covered Transaction Reports (CTRs) on transactions involving all kinds of monetary instruments or property.e.000. semi-annually or annually). shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. 3..APP. They. SCCP and transfer agents are exempt from filing CTRs.e. said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500. deposits of premium payments in bulk or settlements of trade. 4. only the brokers-dealers shall be required to file CTRs and STRs. All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property. whichever comes first. whether in domestic or foreign currency. Submission of STRs. Where the covered institution engages in bulk transactions with a bank. P-5 05. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS 1.Page 6 their respective transaction amounts. and the bulk transactions do not distinguish clients and P Regulations Appendix P-5 . With respect to insurance companies. other than banks. The PSE. Covered institutions. Due to the nature of the transactions in the stock exchange.000 and are included in the bulk transactions. regardless of the mode of payment.. required to file STRs when the transactions that pass through them are deemed to be suspicious. 2. such amount shall be reported as a covered transaction. Under this rule. are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require. Manual of Regulations for Non-Bank Financial Institutions . however. regardless of the mode of payment (monthly.31 Annex P-5-b AMLC Resolution No. when the total amount of the premiums for the entire year. PCD. Covered Institution refers to: Rule 3. damage or liability arising from an unknown or contingent event. RULE 2 DECLARATION OF POLICY Rule 2. offshore banking units. quasi-bank.APP. (a) An insurance company includes those entities authorized to transact insurance business in the Philippines.b.31 REVISED IMPLEMENTING RULES AND REGULATIONS R.1. Definitions. 9194. (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank. NO.Page 1 . No. 9160”.a. No. professional reinsurers. as amended by R. the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. including their subsidiaries and affiliates supervised and/ or regulated by the Bangko Sentral ng Pilipinas (BSP). as amended by R. (the Anti-Money Laundering Act of 2001 [AMLA]).A. . 9160.It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity.a. Transacting insurance business includes making or proposing to make.A. insurance agents. No. and whether domestic. – For purposes of this Act. 9194. whether life or non-life.12. . Purpose.These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA. RULE 3 DEFINITIONS Rule 3. P-6 05. doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . trust entity or any other institution supervised or regulated by the BSP. NO. quasi-banks. 9194 (Appendix to Sec.These Rules shall be known and cited as the “Revised Rules and Regulations Implementing R. reinsurance brokers.A. holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). or any other institution supervised and/or regulated by the BSP. Rule 3. Insurance companies. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank. Rule 1. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss. Banks. holding companies. Declaration of Policy. 4691P) RULE 1 TITLE Rule 1. any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety. trust entities. . non-stock savings and loan associations. pawnshops. Consistent with its foreign policy. the following terms are hereby defined as follows: Rule 3.a. trust entity. AS AMENDED BY R. or as surety.a. any insurance contract.A. Title. and all other institutions.A. insurance brokers. quasi-bank. as insurer.2. domestically incorporated or branch of a foreign entity. P Regulations Appendix P-6 .12. and transfer companies and other similar entities.3. domestically incorporated or a branch of a foreign entity. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. employed as such or as an agent. negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance. pre-need companies or issuers and other similar entities. 612. as amended. cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). money changers. (c) A securities salesman includes a natural person.) No. including securities of the Government and its instrumentalities. (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority. close-end investment companies. for any insurance company authorized to do business in the Philippines. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. whether regularly or on an isolated basis.D. in the underwriting of securities of another person or enterprise. issuer or broker to buy and sell securities.D. (e) A reinsurance broker includes any person who. commodities or financial derivatives based thereon. and other entities managing securities or rendering similar services. not being a duly authorized agent. on behalf of an insured other than himself. partnership. association or corporation that transacts solely and exclusively reinsurance business in the Philippines. investment houses. associated persons of brokers or dealers. (c) An insurance broker includes any person who acts or aids in any manner in soliciting. including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P. but does not include a salesman. Manual of Regulations for Non-Bank Financial Institutions . (i) Securities dealers. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. by a dealer. investment agents and consultants.APP. (e) An investment house includes an enterprise which engages or purports to engage. brokers.Page 2 Rule 3. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. as amended. trading advisors. 612. P-6 05. No. whether domestic. remittance. acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance. (ii) mutual funds or open-end investment companies. (d) A professional reinsurer includes any person. or an agent or a person whose functions are solely clerical or ministerial. (iii) foreign exchange corporations. and (iv) other entities administering or otherwise dealing in currency. A holding company system includes a holding company together with its controlled insurers and controlled persons. common trust funds. valuable objects. salesmen.31 Presidential Decree (P.a. money payment. employee or officer of an insurer in which any reinsurance is effected. editor. for the purpose of administration. (e) such other person not within the intent of this definition. pension. teacher. (c) the publisher of any bonafide newspaper. or otherwise transacts business. whether regularly or on an isolated basis.Page 3 . reporter. (3) any person who undertakes the management of portfolio securities of investment companies. an investment fund. in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. (g) A closed-end investment company includes an investment company other than open-end investment company. education. holding or management of such funds and/or properties for the use.APP. including the arrangement of purchases. (k) Investment Advisor/Agent/ Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others. reports.12. (i) A pre-need company or issuer includes any corporation supervised and/ or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. benefit or advantage of the trustor or of others known as beneficiaries. either directly or through circulars. business or financial publication of general and regular circulation. accountant. It includes any insurance policy holder. as to the value of any security and as to the advisability of trading in any security. except: (a) any bank or trust company. (b) any journalist. as well as the beneficiary of said transactions. news. sales or exchanges of securities. which the Commission may. P-6 05. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan. exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee. columnist. whether actual or prospective. remit or transfer or transmit money on behalf of any person to another person. publications or writings. (m) A money payment. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need. from time to time. or a grantor of a trust. internment and other plans. or (2) who for compensation and as part of a regular business.31 (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding. with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage. lawyer. (n) “Customer” refers to any person or entity that keeps an account. A customer also includes the beneficiary of a trust. (d) any contract market. analyzes reports concerning the capital market. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . including their employees. remittance and transfer company includes any person offering to pay. any redeemable security of which it is the issuer. approve. payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life. provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. issues or promulgates. a pension fund or a company or person whose assets are managed by an asset manager. real or personal. Rule 3. costs. accounts. Rule 3. disbursements. payments. Supervising Authority refers to the BSP. checks and notes. custodial receipts or deposit substitute instruments. the SEC or the IC.b. P-6 05. (2) Drafts. (2) All monetary. bonds.c.b. claim or right with respect thereto. or (7) Any transaction that is similar. assignment or delivery. Rule 3. trading orders. Monetary Instrument refers to: (1) Coins or currency of legal tender of the Philippines. and (5) Other similar instruments where title thereto passes to another by endorsement. and contracts of suretyship. (2) The client is not properly identified. (3) The amount involved is not commensurate with the business or financial capacity of the client. trust certificates.Page 4 certificates. outlays. shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. the SEC and the IC. Where the BSP. regardless of amount. analogous or identical to any of the foregoing. and maintenance of any unlawful activity. Person refers to any natural or juridical person.e. Rule 3. papers or things used in or having any relation to any unlawful activity. It includes: (1) All material results. Rule 3. Proceeds refers to an amount derived or realized from an unlawful activity. where any of the following circumstances exists: (1) There is no underlying legal or trade obligation. Suspicious transactions are transactions. Rule 3. within the limits of the AMLA. Manual of Regulations for Non-Bank Financial Institutions .d. charges. (3) Securities or negotiable instruments.APP.12. privilege.31 (o) “Property” includes any thing or item of value.f. the BSP. Covered Transaction is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Php500. (6) The transaction is in any way related to an unlawful activity or any money laundering activity or offense under this act that is about to be.g. tangible or intangible. commercial papers. (5) Any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution. life or non-life. Offender refers to any person who commits a money laundering offense. devices. and (3) All moneys. is being or has been committed. expenditures.000. effects and any amount realized from any unlawful activity. Rule 3. refunds and other similar items for the financing. operations. financial or economic means. documents. it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the act.1. profits. or any interest therein or any benefit.00 within one (1) banking day. transaction tickets and confirmations of sale or investments and money market instruments. (4) Contracts or policies of insurance. purpose or economic justification. deposit P Regulations Appendix P-6 . SEC or IC supervision applies only to the registration of the covered institution. (4) Taking into account all known circumstances. or of any other country. on behalf of the government. panel or group. including the government. (1) Kidnapping for ransom (B) Sections 4. without prejudice to Section 13 of R. (2) Importation of prohibited drugs. in any manner or capacity. panel or group of which he is a member. 9165. 10. wherein the public officer in his official capacity has to intervene under the law. otherwise known as the Comprehensive Dangerous Drugs Act of 2002. (4) Administration of prohibited drugs. committee.A. 9. (20) Plunder through misappropriation. for himself or for another. misuse or malversation of Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . as amended. 6. has secured or obtained. (17) Entering. 14. even if he votes against the same or he does not participate in the action of the board. any government permit or license. into any contract or transaction manifestly and grossly disadvantageous to the same. 15 and 16 of R.A.APP. share. (14)Directly or indirectly requesting or receiving any gift. h and i of R. (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den.i. No. or will secure or obtain. (D) Plunder under R. (19) Directly or indirectly becoming interested. (15) Directly or indirectly requesting or receiving any gift. and which exercise of discretion in such approval. No. (3) Sale of prohibited drugs. 13. c. or in which he is prohibited by the Constitution or by any law from having any interest. evident bad faith or gross inexcusable negligence. 3019.A. percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party. 3019. 12. No. administrative or judicial functions through manifest partiality.31 Rule 3. It also includes any movement of funds by any means with a covered institution. g. 8. Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10)Possession of prohibited drugs (11)Use of prohibited drugs (12)Cultivation of plants which are sources of prohibited drugs (13)Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b.A. otherwise known as the Revised Penal Code. present or other pecuniary or material benefit. P-6 05. Transaction refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. Rule 3. (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity. 7080. (16) Causing any undue injury to any party. to the following: (A) Kidnapping for ransom under Article 267 of Act No. Unlawful activity refers to any act or omission or series or combination thereof involving or having relation. advantage or preference in the discharge of his official. 5. No. present. conversion. as amended.h. otherwise known as the Anti-Graft and Corrupt Practices Act. or giving any private party any unwarranted benefits.Page 5 . e. whether or not the public officer profited or will profit thereby. 3815. from any person for whom the public officer. as amended. for personal gain. in consideration for the help given or to be given. or having material interest in any transaction or act requiring the approval of a board.12. or other property. kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned. (28) Robbery in an uninhabited house or public building or edifice devoted to worship. (23) Plunder by obtaining. No. P-6 05. (G) Piracy on the high seas under the Revised Penal Code. even though such obligation be totally or partially guaranteed by a bond. property. share. money. No. (27) Robbery with physical injuries. 301 and 302 of the Revised Penal Code. 299. (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank. committed in an uninhabited place and by a band. any commission. 296. 532. connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. (I) Swindling under Article 315 of the Revised Penal Code. (25) Plunder by taking undue advantage of official position. directly or indirectly.D. (24) Plunder by establishing agricultural. goods. as amended. and by writing any document above such signature in blank.APP. influence. relationship. or with use of firearms on a street.31 public funds or raids upon the public treasury. receiving or accepting.Page 6 (F) Jueteng and Masiao punished as illegal gambling under P. to the prejudice of another. or for administration. (H) Qualified theft under Article 310 of the Revised Penal Code. or by denying having received such money. industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests. (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions. P Regulations Appendix P-6 . 295. (35) Estafa with unfaithfulness or abuse of confidence by altering the substance. qualifications. as amended and P. 300. any shares of stock. (33) Aiding and abetting pirates and brigands. (38) Estafa by using a fictitious name. or under any other obligation involving the duty to make delivery or to return the same. gift. agencies. 1602. even though such obligation be based on an immoral or illegal consideration. (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting. (30) Masiao.12. (21) Plunder by receiving. quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so. directly or indirectly. (32) Piracy in inland Philippine waters. percentage. (29) Jueteng. to the prejudice of the offended party or any third person. instrumentalities or government-owned or controlled corporations or their subsidiaries. as amended. (31) Piracy on the high seas. Manual of Regulations for Non-Bank Financial Institutions . (E) Robbery and extortion under Articles 294. (26) Robbery with violence or intimidation of persons. goods or any other personal property received by the offender in trust or on commission. authority. credit. or falsely pretending to possess power. road or alley.D. equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking. as amended. (34) Qualified theft. but not limited to. (49) Receiving smuggled article after fraudulent importation. K. the internet. downloading. which refers to: (58) the unauthorized copying. (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game. distribution. by means of deceit.1. any court record. (51) Buying smuggled article after fraudulent importation. (40) Estafa by pretending to have bribed any government employee. (K) Violations under R. (45) Fraudulent importation of any vehicle. (J) Smuggling under R. concealing or destroying. (42) Estafa by inducing another. or (56) any access in order to corrupt. such as. (47) Assisting in any fraudulent importation. (46) Fraudulent exportation of any vehicle. or destroy using a computer or other similar information and communication devices. of protected material. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . alter.A. 455 and 1937. document or any other papers. reproduction.APP. or (63) the unauthorized broadcasting. Hacking or cracking. Nos. substitution. (53) Transportation of smuggled article after fraudulent importation.A. Violations of the Consumer Act or R. (60) the unauthorized importation. (62) the unauthorized storage. electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works. (39) Estafa by altering the quality.2. destruction. or his funds deposited therein were not sufficient to cover the amount of the check. K. (54) Fraudulent practices against customs revenue. which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system. in whole or in part. (44) Estafa by removing.12. in a manner that infringes intellectual property rights. removal. office files. otherwise known as the Electronic Commerce Act of 2000. steal. 8792. communication. through the use of telecommunication networks.Page 7 .3. No.31 agency. resulting in the corruption. or issuing a check in payment of an obligation when the offender has no funds in the bank. or by means of other similar deceits. No. (59) the unauthorized dissemination. business or imaginary transactions. uploading. P-6 05. (41) Estafa by postdating a check. making available to the public. without the knowledge and consent of the owner of the computer or information and communications system. modification. to sign any document. alteration. alteration. including (57) the introduction of computer viruses and the like. (61) the unauthorized use. theft or loss of electronic data messages or electronic document. (48) Assisting in any fraudulent exportation. (50) Concealing smuggled article after fraudulent importation. K.A. (52) Selling smuggled article after fraudulent importation. fineness or weight of anything pertaining to his art or business. Piracy. (69) Revealing trade secrets.A.12. 6235. (79) False representations in advertisements as the existence of a warranty or guarantee. (86) Destructive arson.31 (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act. including those perpetrated by terrorists against noncombatant persons and similar targets. offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC. (L) Hijacking and other violations under R. (66) Sale of any adulterated or mislabeled product using electronic documents. P-6 05. (93) Manipulation of security prices by effecting. destructive arson P Regulations Appendix P-6 . (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market. counterfeiting or simulating any mark. tag. (88) Hijacking. (77) Unfair or unconscionable sales acts and practices. (82) False. otherwise known as the Securities Regulation Code of 2000. destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets.Page 8 and murder. (68) Forging.A. 8799. alone or with others. (81) Mislabeling consumer products. Manual of Regulations for Non-Bank Financial Institutions . (73) Sale of any drug or device beyond its expiration date. (74) Introduction into commerce of any mislabeled or banned hazardous substance. (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act. (75) Alteration or removal of the labeling of a hazardous substance. controlled or commonly controlled company by others. (89) Sale. (91) Violation of reportorial requirements imposed upon issuers of securities. (87) Murder. whether of the same or different class. controlled or commonly controlled company by others. (76) Deceptive sales acts and practices. deceptive or misleading advertisements. No. as amended. (85) Hijacking.APP. (M) Fraudulent practices and other violations under R. (67) Adulteration or misbranding of any consumer product. (70) Alteration or removal of the labeling of any drug or device held for sale. label or other identification device. a series of transactions in securities that depresses their price to induce the sale of a security. (65) Sale of any product that has been banned by a rule under the Consumer Act. (84) Other violations of the provisions of the E-Commerce Act. (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act. of the same issuer or of a controlling. alone or with others. a series of transactions in securities that raises their prices to induce the purchase of a security. No. (83) Violation of required disclosures on consumer loans. (80) Violation of price tag requirements. (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe. (78) Fraudulent practices relative to weights and measures. whether of the same or different class. as defined under the Revised Penal Code. stamp. of the same issuer or of a controlling. (94) Manipulation of security prices by effecting. in an Exchange or using the facility of an Exchange which is not registered with the SEC. (110) Violations on the restrictions on borrowings by members. for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange. (112) Hindering. obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC. not registered with the SEC. boiler room operations and such other similar devices. squeezing the float. (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer. not misleading. scheme or artifice to defraud in connection with the purchase and sale of any securities. painting the tape. (97) Manipulation of security prices by making false or misleading statements with respect to any material fact. or reporting such transaction. alone or with others. (98) Manipulation of security prices by effecting. brokers and dealers. (101) Employment of any device. (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman. any series of transactions for the purchase and/ or sale of any security traded in an Exchange for the purpose of pegging. alone or with others. (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made. fixing or stabilizing the price of such security. (103) Engaging in any act. or acting as a salesman. (108) Making use of the facility of a clearing agency which is not registered with the SEC. (100) Execution of short sales or stoploss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors. which he knew or had reasonable ground to believe was so false and misleading. (104) Insider trading. unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC.12.Page 9 . a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close. (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security. hype and dump. (99) Sale or purchase of any security using any manipulative deceptive device or contrivance.31 (95) Manipulation of security prices by effecting. in the light of the circumstances under which they were made. (109) Violations of margin requirements. P-6 05. (111) Aiding and Abetting in any violations of the Securities Regulation Code. (107) Effecting any transaction in any security. or an associated person of any broker or dealer without any registration from the Commission.APP. transaction. practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . Attempts at Transactions. RULE 5 JURISDICTION OF MONEY LAUNDERING CASES AND MONEY LAUNDERING INVESTIGATION PROCEDURES (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries. involving or relating to the proceeds of any unlawful activity. Money Laundering Offense. transacts or attempts to transact said monetary instrument or property. . Rule 5. fails to do so. (114) Any other violations of any of the provisions of the Securities Regulation Code.31 (113) Violations of any of the provisions of the implementing rules and regulations of the SEC. performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above.Page 10 Rule 5.The AMLC shall investigate: (a) Suspicious transactions.1.3. Prosecution of Money Laundering (a) Any person may be charged with and convicted of both the offense of money Manual of Regulations for Non-Bank Financial Institutions . and (d) Other violations of this act.12. the reports required under Rule 9. involves. involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. . Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing. (b) Covered transactions deemed suspicious after an investigation conducted by the AMLC.i. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC). thereby making them appear to have originated from legitimate sources.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing. RULE 6 PROSECUTION OF MONEY LAUNDERING Rule 6. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. (c) Money laundering activities. RULE 4 MONEY LAUNDERING OFFENSE Rule 4. Accordingly. the proceeds of any unlawful activity. P-6 05. P Regulations Appendix P-6 . Money laundering is a crime whereby the proceeds of an unlawful activity as herein defined are transacted.APP.2. Investigation of Money Laundering Offenses. Rule 5. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents.1. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity.1. the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3. as to constitute the same as an unlawful activity under the AMLA.The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. is “of a similar nature”. Jurisdiction of Money Laundering Cases. or relates to. In determining whether or not a felony or offense punishable under the penal laws of other countries. which shall then conduct the preliminary investigation of the case. Composition. Rule 6.2. the officer duly designated or authorized to discharge the functions of the Governor of the BSP. . or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC. and the latter should find probable cause of a money laundering offense. Rule 6. Rule 7. may be established by direct evidence or inferred from the attendant circumstances. Rule 6.31 laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. as the case may be. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt.Page 11 . .2.The functions of the AMLC are defined hereunder: (1) to require and receive covered or suspicious transaction reports from covered institutions. after investigation. Functions.5.The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the BSP as Chairman. Unanimous Decision. as the case may be. involves. it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. . before the Department of Justice or the Ombudsman.a.APP. Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan. including the element of knowledge that the monetary instrument or property represents. in the case of the incapacity. the rules of court and other pertinent laws and rules. Rule 6. absence or disability of any member to discharge his functions. However.b.7. as the case may be. it shall cause a complaint to be filed. When the AMLC finds. P-6 05. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice.The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA. Knowledge of the offender that any monetary instrument or property represents. pursuant to Section 7 (4) of the AMLA. involves or relates to the proceeds of any unlawful activity.3. including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the application Ex-Parte by the AMLC to the Court of Appeals for a Freeze Order with respect to the monetary instrument or property involved therein and resort to other remedies provided under the AMLA. however.1. RULE 7 CREATION OF ANTI-MONEY LAUNDERING COUNCIL (AMLC) Rule 7. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. No element of the unlawful activity. the Chairman of the SEC or the Insurance Commissioner. or the Ombudsman.1. shall act in his stead in the AMLC. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 .4.12. Rule 6. the Commissioner of the Insurance Commission and the Chairman of the SEC as members. Rule 6.6. Rule 7. the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store. including government-owned and -controlled corporations. resolution or directive where the action sought therein contravenes the provisions of the Constitution. and other international organizations of which the Philippines is a member. However. facilitate the resolute prevention. the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. (6) to apply before the Court of Appeals. representing. or request for assistance from a foreign State.APP. or believed by the Council. implied. (7) to implement such measures as may be inherent. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. resolutions and other directives of the United Nations (UN). (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses. (10) to enlist the assistance of any branch. the AMLC may refuse to comply with any such request. department. in undertaking any and all antimoney laundering operations. incidental and justified under the AMLA to counteract money laundering. in any way. the Department of Finance. in whole or in part.12. on the basis of substantial evidence. the Philippine National Police. convention. The AMLC may require the intelligence units of the Armed Forces of the Philippines. agency or instrumentality of the government. as well as their attached agencies. in respect of conventions. the methods and techniques used in money laundering. P-6 05. facilities and resources for the more resolute prevention. Subject to such limitations as provided for by law.31 (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered or suspicious transaction report. track and analyze money laundering transactions for the resolute prevention. P Regulations Appendix P-6 . or the execution thereof is likely to prejudice the national interest of the Philippines. wherever located. necessary. For this purpose. bureau. detection and investigation of money laundering offenses. involving.Page 12 (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. office. and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may. (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. the UN Security Council. for the freezing of any monetary instrument or property alleged to be proceeds of any unlawful activity as defined under Section 3(i) hereof. the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database. which may include the use of its personnel. the proceeds of an unlawful activity. the Department of Justice. money laundering activities and other violations of this Act. in any manner or by any means. detection and investigation of money laundering offenses and prosecution of offenders. (5) to investigate suspicious transactions and covered transactions deemed suspicious after an investigation by the AMLC. or related to. Ex-Parte. directly or indirectly. to be. (9) to develop educational programs on the pernicious effects of money laundering. Manual of Regulations for Non-Bank Financial Institutions . unquestionable integrity and known probity.12. or any other branch.a. any information known to them by reason of their office.The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP. the Executive Director. or as often as may be necessary at the call of the Chairman. Detail and Secondment. require a system of Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . including government-owned and controlled corporations.3.3. the salaries. This prohibition shall apply even after their separation from the AMLA. subject to existing laws and Civil Service Rules and Regulations.Page 13 . the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. the SEC or the IC. benefits and emoluments from their respective mother units. Detailed personnel shall continue to receive their salaries. shall not reveal. whether permanent. on detail or on secondment. Composition.In organizing the Secretariat. must have served at least five (5) years either at the BSP. P-6 05.1. Rule 8. RULE 8 CREATION OF A SECRETARIAT Rule 8. in undertaking any and all antimoney laundering operations.The members of the AMLC. RULE 9 PREVENTION OF MONEY LAUNDERING. (11) To impose administrative sanctions for the violation of laws. . .The AMLC shall meet every first Monday of the month. . The Executive Director. emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. at least thirty-five (35) years of age. In case of violation of this provision. bureau.1. Rule 8. continuously or cumulatively. Covered institutions shall establish and record the true identity of its clients based on official documents. He must be a member of the Philippine Bar. Rule 8. for at least five (5) years in the BSP. Customer Identification. the SEC or the IC. agency or instrumentality of the government. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. regulations and orders and resolutions issued pursuant thereto. Confidentiality Provisions. the AMLC may choose from those who have served.The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years.APP. . Rule 7. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC.31 investigation and prosecution of money laundering offenses and other violations of the AMLA. He shall be considered a regular employee of the BSP with the rank of Assistant Governor. . as are applicable to officers of similar rank. office. Seconded personnel shall receive. and shall be entitled to such benefits and subject to such rules and regulations. CUSTOMER IDENTIFICATION REQUIREMENTS AND RECORD KEEPING Rule 9. the SEC or the IC and of good moral character. in lieu of their respective compensation packages from their respective mother units.1. rules.2. and all the members of the Secretariat. They shall maintain a system of verifying the true identity of their clients and. in any manner. Meetings. in case of corporate clients. as well as prohibitions. Customer Identification Requirements Rule 9.4. department. or that its business or operations has not been or is not in the process of being. Trustee. Rule 9.When dealing with customers who are acting as trustee. (5) List of principal stockholders owning at least two percent (2%) of the capital stock. . Minimum Information/ Documents Required for Corporate and Juridical Entities. and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. as well as the authority and identification of all persons purporting to act on their behalf. . (6) Nature of work and name of employer or nature of self-employment/ business. phased out. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. including shell companies and corporations: (1) Articles of Incorporation/ Partnership. (2) By-laws. being legal entities which have no business substance in their own right but through which financial transactions may be conducted. wound up or voided.d.1. it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties.APP. (3) Permanent address. Dealings with shell companies and corporations.1.12.Before establishing business relationships. shut down.31 verifying their legal existence and organizational structure. dissolved. P Regulations Appendix P-6 . nominee. or terminated. Minimum Information/ Documents Required for Individual Customers. bearing a photograph of the customer.c. covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. Social Security System number or Government Service and Insurance System number. and (11) Names of beneficiaries in case of insurance contracts and whenever applicable. (4) Date and place of birth.Page 14 Manual of Regulations for Non-Bank Financial Institutions . P-6 05. should be undertaken with extreme caution. nominees. closed. Covered institutions shall also establish and record the true and full identity of such trustees. (3) Official address or principal business address. Examples of such documents are identity cards and passports. agent or in any capacity for and on behalf of another. (4) List of directors/partners.b. The following minimum information/documents shall be obtained from individual customers: (1) Name.Covered institutions shall require customers to produce original documents of identity issued by an official authority. covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being. (2) Present address. (10) Source of fund(s). (6) Contact numbers. (9) Specimen signature. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws. Rule 9.1. . (7) Contact numbers. (8) Tax identification number. (7) Beneficial owners. if any. Nominee and Agent Accounts. The following minimum information/ documents shall be obtained from customers that are corporate or juridical entities. Rule 9. (5) Nationality. agents and other persons and the nature of their capacity and duties. 2. on their customer accounts.c of these Rules. Rule 9.2. . Record Keeping Requirements Rule 9. Prohibition Against Certain Accounts. as the case may be.e.APP. accounts under fictitious names.12.Peso and foreign currency non-checking numbered accounts shall be allowed: Provided.d. relationships and transactions such that any account. Existing and New Accounts and New Transactions. Closed Accounts.31 Rule 9. Rule 9. and all other similar accounts shall be absolutely prohibited. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts.e. . – If a money laundering case based on any record kept by the covered institution concerned has been filed in court.With respect to closed accounts. P-6 05. Rule 9.a.No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9.2. the records on customer identification. Rule 9. account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed.1. – All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions.2.1. Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution. Rule 9. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. Rule 9.b. relationship or transaction can be so reconstructed as to enable the AMLC. Retention of Records in Case a Money Laundering Case has been Filed in Court.f. Form of Records. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records. . whichever is later. Rule 9. – Records shall be retained as originals in such forms as are admissible in court pursuant to Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 .g.Page 15 . The provisions of existing laws to the contrary notwithstanding. Covered institutions shall prepare and maintain documentation. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters.. until it is confirmed that the case has been finally resolved or terminated by the court.1. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. anonymous accounts.2. in accordance with the aforementioned client identification requirements. Prohibition Against Opening of Accounts Without Face-to-face Contact.All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from 17 October 2001 or from the dates of the accounts or transactions. Record Keeping: Kinds of Records and Period for Retention.c. Numbered Accounts.2. said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules. and/or the courts to establish an audit trail for money laundering.1. Page 16 either via diskettes. covered institutions and their officers and employees. consultants or associates are prohibited from communicating. leased lines. or media shall be held criminally liable. Confidentiality Provisions. with the corresponding hard copy for suspicious transactions.c. agents. In case of violation thereof. employees. Rule 9.b. all covered transactions during said deferment period shall be submitted thereafter. . to any person. R.Covered institutions shall report to the AMLC all covered transactions and suspicious transactions within five (5) working days from occurrence thereof.2. Covered and Suspicious Transaction Report Forms. 9194. Neither may such reporting be published or aired in any manner or form by the mass media. in any manner or by any means. Covered institutions shall use the existing forms for Covered Transaction Reports and Suspicious Transaction Reports.a. entity.3. covered institutions and their officers.b. unless the supervising authority concerned prescribes a longer period not exceeding ten (10) working days. but are prohibited from communicating. P-6 05. the contents thereof. directly or indirectly. 8791 and other similar laws. No. in order to allow the covered institutions to configure their respective computer systems. as amended.31 existing laws and the applicable rules promulgated by the Supreme Court.d.A.3.The Covered Transaction Report (CTR) and the Suspicious Transaction Report (STR) shall be in the forms prescribed by the AMLC. No. Rule 9. P Regulations Appendix P-6 . The final flow and procedures for such reporting shall be mapped out in the manual of operations to be issued by the AMLC. employee. or the media. agent. Manual of Regulations for Non-Bank Financial Institutions . the concerned officer. provided that. R. Rule 9. to any person the fact that a covered or suspicious transaction report was made. No. Period of Reporting Covered Transactions and SuspiciousTransactions. In case of violation hereof. – When reporting covered transactions or suspicious transactions to the AMLC.APP. Exemption from Bank Secrecy Laws. advisors. Rule 9. shall be criminally liable. Should a transaction be determined to be both a covered and a suspicious transaction. the concerned officer and employee of the covered institution. the contents thereof. consultant or associate of the covered institution. The reporting of covered transactions by covered institutions shall be deferred for a period of sixty (60) days after the effectivity of R. as amended.b.3. advisor. Rule 9. or any other information in relation thereto. No.A. shall not be deemed to have violated R. Covered Transaction Reports and Suspicious Transaction Reports shall be submitted in a secured manner to the AMLC in electronic form. directly or indirectly. 6426. Rule 9. - of Covered Rule 9.3. in any manner or by any means.12.3. the covered institution shall report the same as a suspicious transaction.A. electronic mail. . the fact that a covered transaction report was made. until such time as the AMLC has issued new sets of forms. – When reporting covered or suspicious transactions to the AMLC. representatives. representative. or through internet facilities. or other similar devices.3.A.1. Reporting Transactions. or any other information in relation thereto. 1405. or as may be determined by the AMLC.3. not only of the monetary instruments or properties in the names of the reported owner(s)/holder(s).3. whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. Upon receipt of the notice of the freeze order. Rule 10. and monetary instruments or properties named in the application of the AMLC but also all other related web of accounts pertaining to other monetary instruments and properties.Page 17 .12.3.31 Rule 9.APP. – Rule 10.3. (a) After an investigation conducted by the AMLC and upon determination that probable cause exists that a monetary instrument or property is in any way related to any unlawful activity as defined under Section 3 (i). Rule 10.a. the criminal proceedings involving the unlawful activity to which said monetary instrument or property is any way related. Rule 10. RULE 10 APPLICATION FOR FREEZE ORDERS Rule 10. their branches and/or other units. The account number(s). the AMLC may file an Ex-Parte application before the Court of Appeals for the issuance of a freeze order on any monetary instrument or property subject thereof prior to the institution or in the course of. property or related web of accounts as of the time they were frozen. 3.3. The amount of the monetary instrument.e.b. prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be. .Probable cause includes such facts and circumstances which would lead a reasonably discreet. – No administrative. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 .c. criminal or civil proceedings. Safe Harbor Provisions. (c) The freeze order shall be effective for twenty (20) days unless extended by the Court of Appeals upon application by the AMLC. The covered institution shall likewise immediately furnish a copy of the notice of the freeze order upon the owner or holder of the monetary instrument or property or related web of accounts subject thereof. is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. Definition of Probable Cause. P-6 05. a detailed written return on the freeze order.3. Duty of Covered Institution Upon Receipt Thereof. specifying all the pertinent and relevant information which shall include the following: 1. the covered institution concerned shall submit to the Court of Appeals and the AMLC. shall lie against any person for having made a covered transaction report or a suspicious transaction report in the regular performance of his duties and in good faith.2. Within twenty-four (24) hours from receipt of the freeze order. the AMLC may apply to the Court of Appeals for the freezing. by personal delivery. the covered institution concerned shall immediately freeze the monetary instrument or property and related web of accounts subject thereof. 2. the funds and sources of which originated from or are related to the monetary instrument(s) or property(ies) subject of the freeze order(s). The name(s) of the account owner(s) or holder(s). Rule 10.1. When the AMLC May Apply for the Freezing of Any Monetary Instrument or Property. (b) Considering the intricate and diverse web of related and interlocking accounts pertaining to the monetary instrument(s) or property(ies) that any person may create in the different covered institutions. All relevant information as to the nature of the monetary instrument or property. the AMLC may apply in the same court for an extension of said period. The return of the covered institution as required under rule 10. (c) Hijacking and other violations under R.6. No.5. . The time when the freeze thereon took effect.31 4. Authority to Inquire into Bank Deposits with Court Order. destructive arson and murder. the covered institution shall freeze these related web of accounts wherever these funds may be found. P Regulations Appendix P-6 . 6426.3. . and other laws.A. P-6 05. No.No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period. 9165.4. Upon receipt of the freeze order issued by the court of appeals and upon verification by the covered institution that the related web of accounts originated from and/or are materially linked to the monetary instrument or property subject of the freeze order.6. R. No. as amended. No.1. 15 and 16 of R.A. Prohibition Against Issuance of Freeze Orders Against Candidates for an Electoral Office During Election Period. 12. Rule 10. said period shall be deemed suspended and the freeze order shall remain effective.A. otherwise known as the Revised Penal Code. 8791. .A. except in cases as provided under Rule 11. the funds and sources of which originated from and/or are materially linked to the monetary instrument(s) or property(ies) subject of the freeze order(s).c shall include the fact of such freezing and an explanation as to the grounds for the identification of the related web of accounts. Rule 11.5. 13. as defined under the Revised Manual of Regulations for Non-Bank Financial Institutions . as amended.12. Definition of Related Web of Accounts. Notwithstanding the provisions of R. Rule 10. and 6. 5. Extension of the Freeze Order. 1405. 10. Any information on the related web of accounts pertaining to the monetary instrument or property subject of the freeze order.2. the covered institution shall not lift the effects of the freeze order without securing official confirmation from the AMLC. RULE 11 AUTHORITY TO INQUIRE INTO BANK DEPOSITS Rule 11. the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates upon order of any competent court in cases of violation of this Act. Authority to Inquire into Bank Deposits Without Court Order. 8. as amended. Upon the timely filing of such application and pending the decision of the Court of Appeals to extend the period.Page 18 Rule 10.Before the twenty (20) day period of the freeze order issued by the court of appeals expires. when it has been established that there is probable cause that the deposits or investments involved are related to an unlawful activity as defined in Section 3 (i) hereof or a money laundering offense under Section 4 hereof.The AMLC may inquire into or examine deposit and investments with any banking institution or non-bank financial institution and their subsidiaries and affiliates without a Court Order where any of the following unlawful activities are involved: (a) Kidnapping for ransom under Article 267 of Act No. 14. (b) Sections 4. No. otherwise known as the Comprehensive Dangerous Drugs Act of 2002. However. Related Web of Accounts pertaining to the money instrument or property subject of the freeze order is defined as those accounts.A. 6235.2.APP. 3815. 9. R. the BSP may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates when the examination is made in the course of a periodic or special examination. P-6 05.a. and the court has. in whole or in part. as amended. the Revised Rules of Court on civil forfeiture shall apply. Rule 11. Rule 12. ordered the seizure of any monetary instrument or property.3. and there is probable cause that the deposits or investments with any banking or non-banking financial institution and their subsidiaries and affiliates are in anyway related to these unlawful activities the AMLC shall issue a resolution authorizing the inquiry into or examination of any deposit or investment with such banking or non-banking financial institution and their subsidiaries and affiliates concerned. in default of which the said order shall become final and Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . Rule 11.3. RULE 12 FORFEITURE PROVISIONS Rule 12.2.1. Any findings of the BSP which may constitute a violation of any provision of this act shall be transmitted to the AMLC for appropriate action. Procedure For Examination Without A Court Order.BSP Authority to Examine deposits and investments. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture. directly or indirectly. Authority to Institute Civil Forfeiture Proceedings. – When there is a Suspicious Transaction Report or a Covered Transaction Report deemed suspicious after investigation by the AMLC. by verified petition. Rule 12. .31 Penal Code.3.Page 19 . including those perpetrated by terrorists against noncombatant persons and similar targets. and for segregation or exclusion of the monetary instrument or property corresponding thereto.a. – The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. The BSP shall promulgate its rules of examination for ensuring compliance by banks and non-bank financial institutions and their subsidiaries and affiliates with the AMLA and these rules.b. Duty of the banking institution or non.To ensure compliance with this act. When Civil Forfeiture May be Applied. Rule 11.Where any of the unlawful activities enumerated under the immediately preceding Rule 11.APP. in a petition filed for the purpose. for a declaration that the same legitimately belongs to him. The banking institution or the non-banking financial institution and their subsidiaries and affiliates shall. in accordance with the rules of examination of the BSP. .2 are involved. Additional Exception to the Bank Secrecy Act. related to said report. immediately upon receipt of the AMLC Resolution. allow the AMLC and/or its authorized representative(s) full access to all records pertaining to the deposit or investment account.2. Claim on Forfeited Assets.12. the offender or any other person claiming an interest therein may apply.2.banking institution upon receipt of the AMLC Resolution. BSP Rules of Examination. Rule 11. . Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA. or it has been substantially altered.2. the court may. (2) obtaining information that it needs relating to any covered transaction. This provision shall apply in both civil and criminal forfeiture. with due diligence. (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules. or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court. This provision shall apply in both civil and criminal forfeiture. . Obtaining Assistance from Foreign States. freezing. restraining and seizing assets alleged to be proceeds of any unlawful activity. accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property.The AMLC may make a request to any foreign state for assistance in (1) tracking down. converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof.3. be at all times recognized. The principles of mutuality and reciprocity shall. the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for P Regulations Appendix P-6 . diminished in value or otherwise rendered worthless by any act or omission. That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state.31 executory. any or all of the persons named in said request. attributable to the offender. destroyed.APP. . P-6 05. and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided. removed. . and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. be located.Page 20 delaying the execution thereof. instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein. . or it has been concealed.Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense. Request for Assistance from a Foreign State. Powers of the AMLC to Act on a Request for Assistance from a Foreign State. freezing. and said order cannot be enforced because any particular monetary instrument or property cannot.The AMLC may execute a request for assistance from a foreign state by: (1) tracking down. restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules. thereby rendering the same difficult to identify or be segregated for purposes of forfeiture.Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA.4. Rule 13. Rule 13. (3) to the extent allowed by the law of the foreign state. Rule 12.12. RULE 13 MUTUAL ASSISTANCE AMONG STATES Rule 13. or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity. money laundering offense or any other matter directly or indirectly related thereto. directly or indirectly. Payment in Lieu of Forfeiture. Manual of Regulations for Non-Bank Financial Institutions .1. for this purpose. applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of. material or object which may be of assistance to the investigation or prosecution. document. Rule 13. and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister. Authentication of Documents . . consul.7. the requesting state.4.For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA. consul general. material or object obtained pursuant to said request. That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state.5. and authenticated by the seal of his office.Page 21 . consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept. The certificate of authentication may also be made by a secretary of the embassy or legation. material or object named in said request: Provided. is to be produced. and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided. secretary of state. magistrate or equivalent officer in or of.31 and/or search any or all such persons named therein and/or remove any document. A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense. document. Rule 13.6. document. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA. and (8) contain such other information as may assist in the execution of the request. or officer in or of. Rule 13. – Rule 13.7. protectorate or colony. (4) give particulars sufficient to identify any covered institution believed to have any information. Limitations on Requests for Mutual Assistance. the government of the requesting state. material or object which may be of assistance to the investigation or prosecution.APP. vice consul. Rule 13. P-6 05.The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines.12. (7) give all the particulars necessary for the issuance by the court in the requested state of the writs. Suppletory Application of the Revised Rules of Court.1. That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. (6) specify the manner in which and to whom said information. Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . a document is authenticated if the same is signed or certified by a judge. or of the person administering the government or a department of the requesting territory. (3) give sufficient particulars as to the identity of said person. Requirements for Requests for Mutual Assistance from Foreign States. (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction. orders or processes needed by the requesting state. (5) ask from the covered institution concerned any information. unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. – The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations.2.31 execution and satisfaction of final judgments of forfeiture. . resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. at its discretion. resolutions and other directives of the United Nations (UN). With respect.The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Php3. Penalties under Section 4 (c) of the AMLA.00 but not more than Php500. Penalties for the Crime of Money Laundering. Rule 14. the UN Security Council. and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. convention. – The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. Penalties under Section 4 (b) of the AMLA. No. the AMLC may refuse to comply with any such request. Extradition.Page 22 RULE 14 PENAL PROVISIONS Rule 14. . Rule 14.1. the AMLC shall. P-6 05. and other international organizations of which the Philippines is a member.00. which is subject of a request by a foreign state. production of bank documents and other materials and all other actions not specified in the AMLA and these Rules.1. Rule 13. shall be imposed upon a person convicted under Section 4 (b) of the AMLA.d.The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than Php1.1. 9160. Rule 14. however.a.0 Million but not more than twice the value of the monetary instrument or property involved in the offense. shall be imposed upon a person convicted under Section 4 (a) of the AMLA. shall be imposed on a person convicted under Section 4(c) of the AMLA.000.0 Million. application for examination of witnesses.(1) After due notice and hearing.1.c. resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. as amended by Manual of Regulations for Non-Bank Financial Institutions . procuring search warrants.7. or any person who violates any of the provisions of R.APP. included as an extraditable offense in any extradition treaty existing between said state parties.8. Rule 14.1. Administrative Sanctions. Rule 13.The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than Php100. money laundering is deemed to be P Regulations Appendix P-6 . and assistance for any of the aforementioned actions. its officers and employees. Penalties under Section 4 (a) of the AMLA. impose fines upon any covered institution. .b. However.12. to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on 22 October 2001. Authority to Assist the United Nations and other International Organizations and Foreign States. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions. .A.000.5 Million but not more than Php3. or both. No.6.Any person who.a. publisher. 9194 and rules. association.The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than Php100. Penalties for Failure to Keep Records .000.3. Refusal by a Public Official or Employee to Testify. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. – The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Php500. .00 but not more than Php1.APP. Rule 14.2. . Rule 15. Penalties for Malicious Reporting.00.0 Million.12.000. partnership or any juridical person. writer.00 but not to exceed Php500. Rule 14.000. Penalties for Breach of Confidentiality. be deported without further proceedings after serving the penalties herein prescribed. taking into consideration all the attendant circumstances.000. The imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the persons responsible for the violations. RULE 15 PROHIBITIONS AGAINST POLITICAL HARASSMENT Rule 15.A. who participated in. If the offender is a public official or employee. in addition to the penalties prescribed herein.000. shall be imposed on a person convicted under Section 9 (b) of the AMLA. If the offender is a juridical person.00. or both.2. Rule 14. Rule 14. – Remedies Rule 15.Page 23 . the court may suspend or revoke its license.00. Provisional Application. such as the nature and gravity of the violation or irregularity. regulations. the responsible reporter.Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein.The AMLC may apply. Where Offender is a Juridical Person. . Prohibition against Political Persecution. The fines shall be in amounts as may be determined by the council. manager and editor-in-chief shall be liable under this act.31 R. If the offender is an alien.2. That the offender is not entitled to avail the benefits of the Probation Law. suffer perpetual or temporary absolute disqualification from office.000. in addition to the penalties herein prescribed. in the course of the criminal proceedings.5. president. .00 but not more than Php500. orders and resolutions issued pursuant thereto. P-6 05.1. shall be imposed on a person convicted for a violation under Section 9(c). Rule 14. .4. or in bad faith. he shall. as the case may be. as the case may be.The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. Exception. the penalty shall be imposed upon the responsible officers. reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than Php100. for provisional remedies to prevent the Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 .If the offender is a corporation. but in no case shall such fines be less than Php100. he shall.00 but not more than Php500. or allowed by their gross negligence the commission of the crime.000. In case of a breach of confidentiality that is published or reported by media. with malice. at the discretion of the court: Provided. RULE 17 IMPLEMENTING RULES AND REGULATIONS AND MONEY LAUNDERING PREVENTION PROGRAMS Rule 17. as amended by R. (b) The Supervising Authorities. subject to such guidelines as may be prescribed by their respective supervising authority. the SEC and the IC shall.1. detection and reporting. institute adequate screening and recruitment procedures.2. – Rule 17. .2. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules. . institutionwide “know-your-client” policy. regardless of amount or covered Manual of Regulations for Non-Bank Financial Institutions . However. detection and reporting. and set-up an audit function to test the system. Rule 15.a. set-up an effective dissemination of information on money laundering activities and their prevention. concealed. 9160.A. no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. procedures and controls. Every money laundering program shall establish detailed procedures implementing a comprehensive. adopt internal policies. P-6 05. 9194. 9194.31 monetary instrument or property subject thereof from being removed. However.Page 24 own respective charters and regulatory authority. information dissemination on money laundering activities and their prevention.2. Rule 17. No. Rule 17. converted. Covered institutions shall adopt. – (a) Within thirty (30) days from the effectivity of R. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter.b. issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of R.Where there is conviction for money laundering under Section 4 of the AMLA. Implementing Rules and Regulations. No.A. commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. the BSP. Money Laundering Prevention Programs.APP. the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities.A. No. RULE 16 RESTITUTION Rule 16. as part of their money laundering programs. the BSP.c. designate compliance officers at management level. a system of flagging and monitoring transactions that qualify as suspicious transactions.Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code.A. Restitution. including.2. no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. Rule 17. which shall be submitted to the Congressional Oversight Committee for approval. No.b. 9160. the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA. as amended by R.12.2. and the training of responsible officers and personnel of covered institutions. but not limited to. under their P Regulations Appendix P-6 . Budget. P-6 05. RULE 19 APPROPRIATIONS FOR AND BUDGET OF THE AMLC Rule 17. The members Rule 18. Training of Personnel. All covered institutions. including banks insofar as non-deposit and nongovernment bond investment transactions are concerned. . Appropriations for succeeding years shall be included in the General Appropriations Act. maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations. shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be. . Powers of the Congressional Oversight Committee.31 transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. Composition of Congressional Oversight Committee.The Oversight Committee shall have the power to promulgate its own rules. .1. suit or proceeding may be paid by the AMLC in advance of the Manual of Regulations for Non-Bank Financial Institutions P Regulations Appendix P-6 . suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. Rule 19. – The budget of 25 Million Pesos appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. or has been committed. . Rule 17. No.4.Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules.1. criminal or administrative action.The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil. 9194. The BSP shall advance the funds necessary to defray the capital outlay. 9160. to oversee the implementation of this Act.3.A. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. Amendments. from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority.Page 25 . The costs and expenses incurred in defending the aforementioned action. No. as amended by R. and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. Rule 19.2. Costs and Expenses.12.There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives.2. is being. .APP. RULE 18 CONGRESSIONAL OVERSIGHT COMMITTEE Rule 18.A.These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of R. rules and regulations or parts thereof. 9194 on Cases for Extension of Freeze Orders Resolved by the Court of Appeals. RULE 23 TRANSITORY PROVISIONS RULE 21 REPEALING CLAUSE Rule 23. Effectivity. – All laws.A. as are inconsistent with the AMLA. No.Transitory Provisions.APP. including the relevant provisions of R. and the application of such provision or Rule to other persons or circumstances. are hereby repealed. as amended. No. Rule 21. and other similar laws. executive orders.31 final disposition of such action. the other provisions of these Rules. – If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid. . No. RULE 22 EFFECTIVITY OF THE RULES Rule 22. amended or modified accordingly.1.Existing freeze orders issued by the AMLC shall remain in force for a period of thirty (30) days after effectivity of this act.A. Rule 23. No. – These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. R. P Regulations Appendix P-6 . .All existing freeze orders which the Court of Appeals has extended shall remain effective. as amended.Effect of R. RULE 20 SEPARABILITY CLAUSE Rule 20. shall not be affected thereby. unless otherwise dissolved by the same court. suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification.A. as amended. .Page 26 Manual of Regulations for Non-Bank Financial Institutions .12. unless extended by the Court of Appeals. Repealing Clause.2. 8791. 6426.A. 1405. . R. decrees. P-6 05. Separability Clause. or any body politic SECTIONS 4110N .4139N (Reserved) SECTION 4140N Interlocking Directorships and Officerships 4140N. GOCC.2 Transactions not considered quasi-banking 4103N.1 .8 (Reserved) 4104N.1 Persons disqualified to become directors 4143N.6 Watchlisting i .3 Delivery of securities 4103N.MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS N REGULATIONS (Regulations Governing Other Non-Bank Financial Institutions) TABLE OF CONTENTS SECTION 4101N Applicable Regulations on Trust and Other Fiduciary Activities SECTION 4102N Minimum Capital for Investment Houses SECTION 4103N Prior Bangko Sentral Authority on Quasi-Banking Functions 4103N.4104N.9 Sanctions and penalties SECTIONS 4105N .4109N (Reserved) 4109N.1 Representatives of government SECTIONS 4141N .1 .3 Disqualification procedures 4143N.16 Qualification and accreditation of non-bank financial institutions acting as trustee on any mortgage or bond issuance by any municipality.2 Persons disqualified to become officers 4143N.4109N.1 Quasi-banking functions 4103N.5 (Reserved) 4143N.4142N (Reserved) SECTION 4143N Disqualification of Directors and Officers 4143N.15 (Reserved) 4109N.4 Effect of possession of disqualifications 4143N.4 Securities custodianship operations SECTION 4104N Anti-Money Laundering Regulations 4104N. 6 Functions and responsibilities of a securities custodian 4144N.11 Confidentiality 4144N.5 Pre-qualification requirements for a securities custodian/registry 4144N. 344 .3 Prior Bangko Sentral approval 4144N. Institutions.12 Compliance with anti-money laundering laws regulations 4144N.3 Batas Pambansa Blg.29 Sanctions SECTIONS 4145N .An Act to Enchance the Mobility of Disabled Persons by Requiring Certain Buildings.14 Reportorial requirements 4144N.2 4162N.15 .28 (Reserved) 4144N.7 Functions and responsibilities of a securities registry 4144N.4 Application for authority 4144N.4144N.10 Registry of scripless securities of the Bureau of the Treasury 4144N.2 Applicability of this regulation 4144N.4149N (Reserved) SECTION 4150N Rules of Procedure on Administrative Cases Involving Directors and Officers of Trust Entities SECTIONS 4151N .4160N (Reserved) SECTION 4161N SECTION 4162N Reports 4162N.SECTION 4144N Securities Custodianship and Securities Registry Operations 4144N.13 Basic security deposit 4144N.1 Statement of policy 4144N.1 4162N. Establishments and Public Utilities to Install Facilities and other Devices Philippine Financial Reporting Standards/Philippine Accounting Standards Categories and signatories of reports Manner of filing Sanctions in case of willful delay in the submission of reports ii .4156N (Reserved) SECTION 4157N SECTIONS 4158N .9 Independence of the registry and custodian 4144N.8 Protection of securities of the customer 4144N. 3 Qualification standards of the internal auditor 4164N.4179N (Reserved) SECTION 4180N Selection.3 Minimum requirements iii .4171N (Reserved) SECTION 4172N Financial Audit 4172N.1 Status 4164N. General Policy 4301N.2 Risk management system 4301N.4200N (Reserved) SECTIONS 4201N . Effectivity SECTION 4181N Publication Requirements SECTIONS 4182N .4189N (Reserved) SECTION 4190N Duties and Responsibilities of NBFIs and their Directors/ Officers in All Cases of Outsourcing of NBFI Functions SECTION 4191N (Reserved) SECTION 4192N Prompt Corrective Action Framework SECTION 4193N Supervision by Risks SECTION 4194N Market Risk Management SECTION 4195N Liquidity Risk Management SECTIONS 4196N . Appointment and Reporting Requirements for External Auditors. Sanction.2 Scope 4164N.4 Code of Ethics and Internal Auditing Standards SECTIONS 4165N .2 Posting of audited financial statements SECTIONS 4173N .1 Definition of terms 4301N.SECTION 4163N (Reserved) SECTION 4164N Internal Audit Function 4164N.1 Audited financial statements of NBFIs 4172N.4300N (Reserved) SECTION 4301N Credit Card Operations. 8 4301N.4301N.1 General guidelines 4312N.5 Sanctions SECTION 4313N Bank DOSRI Rules and Regulations Applicable to Government Borrowings in Government-Owned or Controlled Financial Institutions SECTION 4314N Loans Against Personal Security SECTIONS 4315N .7 4301N.6 4301N.13 4301N.10 4301N.4 Signatories 4312N.9 4301N. termination of effectivity and reactivation Inspection of records covering credit card transactions Offsets Handling of complaints Unfair collection practices Sanctions SECTION 4302N Classification of Credit Card Receivables SECTION 4303N Updating of Information Provided to Credit Information Bureaus SECTIONS 4304N .15 Information to be disclosed Interest accrual on past due loans Finance charges Deferral charges Late payment/penalty fees Confidentiality of information Suspension.5 4301N.4400N (Reserved) iv .4 4301N.2 Purpose of loans and other credit accommodations 4313N.3 Prohibited use of loan proceeds 4312N.4390N (Reserved) SECTION 4391N Investment in Debt and Marketable Equity Securities SECTIONS 4392N .12 4301N.4311N (Reserved) SECTION 4312N Grant of Loans and Other Credit Accommodations 4312N.14 4301N.11 4301N. 16 Industry association SECTIONS 4512N .1 Guidelines on the imposition of monetary penalties.9 AMLC reportorial requirements 4511N. Other Fixed Assets SECTIONS 4654N .14 (Reserved) 4511N.4652N (Reserved) SECTION 4653N Accounting for Financial Institution Premises.7 Additional requirement 4511N.4659N (Reserved) SECTION 4660N Disclosure of Remittance Charges and Other Relevant Information SECTIONS 4661N .8 Requirements for remittance agents 4511N.4600N (Reserved) SECTION 4601N SECTION 4602N (Reserved) SECTION 4603N Non-Bank BSP Supervised Entities SECTIONS 4604N.10 .15 Sanctions 4511N.6 Application to sell/purchase foreign currencies by FXDs/MCs 4511N.3 Applicability of other laws/regulations 4511N.2 Application for registration 4511N.1 Registration 4511N.4694N (Reserved) Fines and Other Charges 4601N.4511N.4510N (Reserved) SECTION 4511N Foreign Exchange Dealers/Money Changers and/or Remittance Agents Operations 4511N.4500N (Reserved) SECTIONS 4501N . Payment of penalties or fines v .4 Required seminar/training 4511N.5 Sale and purchase of foreign currencies by FXDs/ MCs 4511N.SECTIONS 4401N . SECTION 4695N Valid Identification (ID) Cards for Financial Transactions SECTIONS 4696N .4698N (Reserved) SECTION 4699N General Provision on Sanctions vi . List of Appendices 08. Appointment and the Reporting Requirement for External Auditors of NBFIs N-6 Qualification Requirements for a Bank/NBFI Applying for Accreditation to Act as Trustee on any Mortgage or Bond Issued by any Municipality. 9160.Format of Resolution for Signatories of Category B Reports N-3 Anti-Money Laundering Regulations Annex N-3-a . SUBJECT MATTER N-1 List of Reports Required from Non-Bank Financial Institutions N-2 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex N-2-a .12.31 LIST OF APPENDICES No. Government-Owned or Controlled Corporation.A. or any Body Politic N-7 Format Certification N-8 Registration and Operations of Foreign Exchange Dealers/Money Changers and Remittance Agents Manual of Regulations for Non-Bank Financial Institutions N Regulations . No.A. as amended by R. 9194 N-5 Guidelines to Govern the Selection. No.Certification of Compliance with Anti-Money Laundering Regulations Annex N-3-b .Format of Resolution for Signatories of Category A-2 Reports Annex N-2-b .Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions N-4 Revised Implementing Rules and Regulations R. such as: (1) acceptances. or acceptance of debt instruments of any kind. (2) promissory notes. Twenty (20) or more lenders at any one (1) time. For the borrower’s own account shall refer to the assumption of liability in one’s own capacity and not in representation. other than deposits. c. shall be subject to prior Bangko Sentral ng Pilipinas (BSP) authority on performance of quasi-banking functions under BSP regulations. 4309Q. Sec. or (2) purchasing receivables or other obligations. (4) certificates of assignment or similar instruments with recourse. endorsement. b. including interbank borrowings or borrowings between financial institutions. Borrowing funds for the borrower’s own account. As used in the definition of quasibanking functions.12. from domestic or foreign sources. of another. 4107Q of this Manual. the following terms and phrases shall be understood as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in c and d.4103N. Methods of borrowing: issuance. (5) trust certificates. Investment houses not performing quasi-banking functions shall also be subject to the minimum capital requirement in Sec. of any amount and maturity. which constitutes quasibanking functions. (6) repurchase agreements. or of securities. or as an agent or trustee. above whether the borrower’s liability thereby is treated as real or contingent. § 4103N.1 05. Relending shall be Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 1 . Trust operations and investment management activities of non-bank financial institutions not performing quasi-banking functions shall be subject to the applicable regulations on such activities of non-bank financial institutions performing quasi-banking functions in Part IV of the Q Regulations of this Manual. and d.§§ 4101N . Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Purpose: (1) relending. 4103N Prior Bangko Sentral Authority on Quasi-Banking Functions Borrowing by non-bank financial institutions (NBFIs) from twenty (20) or more lenders for the purpose of relending or purchase of receivables or other obligations. (3) participations. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money. and (7) such other instruments as the Monetary Board may determine. to the regulations in the other parts of the Q Regulations addressed also to trust entities and to the regulations implementing the Truth in Lending Act in Sec. Sec. 4102N Minimum Capital for Investment Houses.1 Quasi-banking functions Quasi-banking functions shall consist of the following: a.31 BSP Manual of Regulations for Non-Bank Financial Institutions N Regulations (Regulations Governing Other Non-Bank Financial Institutions) Section 4101N Applicable Regulations on Trust and Other Fiduciary Activities. The following guidelines shall govern lender count on borrowings or funds mobilized by NBFIs not performing quasibanking functions: 1. or indorsee at some subsequent time. industrial and other non-financial companies. irrespective of the date and amount shall be counted as one (1) borrowing or placement. the underwriter shall be counted as a lender. however. through the means listed in Subsec. In such case the actual/ real lenders/placers as appearing in such proof. That a debt instrument issued in the name of a husband and wife followed by the word spouses. 3.1 for the limited purpose of financing their own needs or the needs of their agents or dealers. and/or indorsement thereof legally obligates the NBFI not performing quasi-banking functions to repurchase or reacquire the securities/ receivables sold. Each buyer. shall be the basis for counting the number of lenders/placers.4103N. 5. assignment. whether under an and. or circumstances indicate that the sale. discounts or rediscounts as a matter of business. Borrowing by commercial. except when the NBFI can prove that there is only one (1) owner for several debt instruments so payable. assignee. when the institution is regularly engaged in lending. indorsed or to pay the buyer. 6. regardless of nature. i. That: Manual of Regulations for Non-Bank Financial Institutions .e. Each debt instrument payable to bearer shall be counted as one (1) lender/ placer. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement.1 . shall be considered borrowed funds or funds mobilized and such stockholders. § 4103N. and/or or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement shall be counted as one borrowing/placement. the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided. Regularly engaged in lending shall refer to the practice of extending loans. however. The following shall not constitute quasi-banking: a. and/ or indorsement of securities or receivables on a without recourse basis whenever the terms and/or attendant documentation. advances. For purposes of ascertaining the number of lenders/placers to determine whether or not an NBFI is engaged in quasi-banking functions..2 Transactions not considered quasi-banking.§§ 4103N. standby or best efforts basis shall be counted on the basis of the number or purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided. practice.31 presumed in the absence of express stipulation. The mere buying and selling without recourse of instruments mentioned in Subsec. 2. That in case of unsold debt instruments in a firm commitment underwriting. 4103N. N Regulations Page 2 4. and b. directors or officers shall be counted in determining the number of lenders/ placers. assigned. the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. Two (2) or more debt instruments issued to the same payee.2 05. Funds obtained by way of advances from stockholders. directors. assignee. assignment. 4103N. and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale.12. or officers. Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm.1: Provided. continuous or consistent lending as distinguished from isolated lending transactions. 3 Delivery of securities1 a.000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. 4101Q. as well as on the confirmation of sale.3(b) shall be delivered physically to the purchaser. (b) Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignment of debt instruments without recourse. Subsequent offenses – Fine of P20. Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 3 . endorsed or accepted shall automatically be considered as falling within the purview of the rules on quasi-banking: Provided.D.2 . or by means of book-entry transfer to the appropriate securities account of the purchaser or his designated BSP accredited custodian in a registry for said securities. assigned or transferred without recourse. Securities sold on a without recourse basis allowed under Subsec. Violation of any provision of Item "a" shall be subject to the following sanctions/penalties: (1) Monetary penalties First offense – Fine of P10.000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected.4103N.31 (1) The institution selling without recourse shall indicate or stamp in conspicuous print on the instrument/s. unless the financial intermediary can show that the issuer has with the said financial intermediary funds corresponding to the amount of the obligation. Subsequent offense – (a) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. (2) Other sanctions First offense – Reprimand for the directors/officers responsible for the violation. or of securities in bearer form. Effective 16 November 2004 under Circular No. or (c) Payment with the funds of the financial intermediary which assigned. or to his designated custodian duly accredited by the BSP. 1 § 4103N. whether for its own account or as an agent of the debt instrument issuer. That an NBFI authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said NBFI. (2) In the absence of the phrase without recourse or sans recourse and the above-required accompanying statement. 450 dated 06 September 2004. 129. the phrase without recourse or sans recourse and the following statement: (Name of non-bank) assumes no liability for the payment. That any of the following practices or practices similar and/ or tantamount thereto in connection with a without recourse transaction renders such transaction as with recourse and within the purview of the rules on quasi-banking. sold or transferred the debt instrument without recourse. while the confirmation of sale or document of conveyance by the seller shall be physically delivered to the purchaser. as amended. if immobilized or dematerialized. directly or indirectly. the instrument so issued. No. if certificated. of this instrument. The custodian shall hold the securities in the name of the buyer: Provided. Any investment house violating the provisions of this Subsection shall be subject to the sanctions provided in Sections 12 and 16 of P.§§ 4103N. its subsidiaries or affiliates.12.3 07. in payment of the debt instrument sold. further. Sanctions. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by the authorized officer of the custodian and delivered to the purchaser. (a) Issuance of postdated checks by a financial intermediary. 4103N. Securities sold on a without recourse basis shall be delivered to the purchaser. (2) the dealing NBFI under BSP supervision had been informed in writing by the client that he is not willing to have his existing securities delivered to a third party custodian. b. M-2006-009 dated 18 July 2006. Sanctions.§§ 4103N. be delivered to a BSP accredited third party custodian. M-2006-002 dated 05 June 2006 and Circular No. and (b) Reprimand for the directors/officers responsible for the violation. and/or (d) Suspension or revocation of the authority to engage in trust and other fiduciary business. or of securities in bearer form. respectively. 524 dated 31 March 2006) § 4103N.29. must therefore. (c) Suspension or revocation of the authority to engage in quasi-banking function. The guidelines to implement the delivery by the seller of securities to the buyer or to his designated third party custodian are shown in Appendix Q-38.3 . 4144N.A. (3) Subsequent offenses – (a) Fine of up to P30.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected.4 Securities custodianship operations a. and (4) it shall be the responsibility of any BSP-regulated institution to satisfy itself that the person purchasing securities from it has no outstanding securities holdings which were not delivered to a BSP accredited third party custodian. No. Sanctions. 7653.4 07. (As amended by M-2007-002 dated 23 January 2007.31 (b) Suspension or revocation of the accreditation to perform custodianship function.000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected. or to his designated custodian duly accredited by the BSP: Provided. (3) any BSP-regulated institution shall not enter into securities transactions with a client who has outstanding securities not delivered to a BSP accredited third party custodian. However. its subsidiaries or affiliates. of the R.12.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. That the other entity authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said entity. violation of any provision of this Subsection shall be subject to the following sanctions/ penalties: (1) First offense – (a) Fine of up to P10. other FIs under BSP supervision may maintain custody of existing securities of their clients who are unable or unwilling to take delivery pursuant to the provisions of this Subsection but who declined to deliver their existing securities to a BSP accredited third party custodian subject to the following conditions: N Regulations Page 4 (1) the custody arrangements with clients have been in existence prior to 05 November 2004 (effectivity date of Circular 457 dated 14 October 2004). Manual of Regulations for Non-Bank Financial Institutions . Existing securities being held under custodianship by other entities under BSP supervision. Violation of any of the provisions of Appendix Q-38 shall be subject to the sanctions/penalties under Subsec. (2) Second offense (a) Fine of up to P20. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37. and (b) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. which are not in accordance with said regulation. and all other institutions. NSSLAs. No. 7653. or any body politic a. 4144N and its subsections shall also govern the securities custodianship and securities registry operations relative to the sale of securities on a without recourse basis. OBUs.A. pawnshops. as amended.A. d. An NBFI applying for accreditation to act as trustee on any mortgage or bond issued by any municipality. b. No. (As amended by Circular No. including their subsidiaries and affiliates supervised and/or regulated by the BSP. 524 dated 31 March 2006) Sec.16 08. Application for accreditation. Banks. the Monetary Board may.8 (Reserved) § 4104N. GOCC.12. at its discretion.31 (b) Suspension or revocation of the authority to act as securities custodian and/or registry. GOCC. and (c) Suspension for 120 days without pay of the directors/officers responsible for the violation. Secs. 4105N .A. or any body politic shall file an application for accreditation with the appropriate department of the SES. or any body politic. QBs. as amended.16 Qualification and accreditation of non-bank financial institutions acting as trustee on any mortgage or bond issuance by any municipality. the administrative sanctions provided under Section 37 of R. GOCC. An NBFI is prohibited from acting as trustee of a mortgage or bond issuance if any elective or appointive official of the LGU. Applicability. No. An NBFI desiring to act as trustee on any mortgage or bond issued by any municipality. 4104N Anti-Money Laundering Regulations. 9160.§§ 4103N. NBFIs duly accredited by the BSP may act as trustee on any mortgage or bond issued by any municipality. or any body politic must comply with the requirements in Appendix N-6.4104N. as amended the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50. otherwise known as "covered institutions” shall comply with the provisions of R. GOCC. (As amended by M-2006-009 dated 18 July 2006. and (2) a certification signed by the president or officer of equivalent rank that the institution has complied with all the qualification requirements for accreditation. Independence of the trustee.A. impose upon any covered institution. 9160.9 Sanctions and penalties a.000 or by imprisonment of not less than two (2) years nor more than ten (10) years.4109N. The application shall be signed by the president or officer of equivalent rank of the NBFI and shall be accompanied by the following documents: (1) certified true copy of the resolution of the institution’s board of directors authorizing the application.15 (Reserved) § 4109N. trust entities. or body politic which issued said mortgage or bond and/or his related Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 5 .000 nor more than P200.4109N (Reserved) §§ 4109N. GOCC.1 . otherwise known as “The New Central Bank Act”. 7653.4 . 612 dated 13 June 2008) §§ 4104N. No. c. 9160. M-2006-002 dated 05 June 2006 and Circular No. No. Sec. at the discretion of the court pursuant to Section 36 of R. Without prejudice to the criminal sanctions prescribed above against the culpable persons. Qualification requirements.1 . its directors and/or officers for any violation of Section 9 of R. otherwise known as the “Anti-Money Laundering Act of 2001” and its Revised Implementing Rules and Regulations (IRRs) in Appendix N-4 and those in Appendix N-3. b.A.4109N. or both. Whenever a covered institution violates the provisions of Section 9 of R. b. Manual of Regulations for Non-Bank Financial Institutions . h. A domestic NBFI designated as trustee of a mortgage or bond issuance may hold and manage. The provisions of the Rules and Regulations on Trust. e. N Regulations Page 6 f.A. No. or body politic as may be required to be delivered to the trustee under the trust indenture/agreement. Investment and management of the funds.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. duly executed by the issuer of the mortgage or bond in favor of the BSP. the same shall only be (i) deposited in any bank authorized to accept deposits from the Government or government entities: Provided. 7653.§ 4109N.31 interests own such number of shares of the NBFI that will allow him or his related interests to elect at least one (1) member of the board of directors of such NBFI or is directly or indirectly the registered or beneficial owner of more than ten percent (10%) of any class of its equity security. Sanctions. An NBFI designated as trustee of any mortgage or bond issued by any municipality. or body politic shall comply with reportorial requirements that may be prescribed by the BSP. its subsidiary or affiliate. g. That the depository bank is not a subsidiary or affiliate of the trustee NBFI. An NBFI authorized by the BSP to act as trustee of the proceeds of mortgage or bond issuance of a municipality. Reportorial requirements. or any body politic shall submit to the appropriate department of the SES a waiver of the confidentiality of information under Sections 2 and 3 of R. No.A. GOCC. the proceeds of the mortgage or bond issuance and such assets and funds of the issuing municipality.16 05. Waiver of confidentiality. i. (2) Investments of funds constituting or forming part of the sinking fund created as the primary source for the payment of the principal and interests due the mortgage or bonds shall also be limited to deposits in any bank authorized to accept deposits from the Government or government entities and investments in government securities that are consistent with such purpose which must be acquired/purchased from any securities dealer/entity. respectively. in accordance with the provisions of the trust indenture or agreement. Applicability of the rules and regulations on trust.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. as amended. its subsidiary or affiliate. 1405.12. other than the trustee or any of its unit/department. of R. violation of any provision of this Subsection shall be subject to the following sanctions/penalties depending on the gravity of the offense: (1) First offense – (a) Fine of up to P10. or (ii) invested in pesodenominated treasury bills acquired/ purchased from any securities dealer/entity. GOCC. Other Fiduciary Business and Investment Management Activities not inconsistent with the provisions of this Subsection shall form part of these rules. other fiduciary business and investment management activities. (2) Second offense – (a) Fine of up to P20. and (b) Reprimand for the directors/officers responsible for the violation. GOCC. subject to the following conditions/restrictions: (1) Pending the utilization of such funds pursuant to the provisions of the trust indenture/agreement. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37. other than the trustee or any of its unit/ department. For purposes of the foregoing. and NBFI/s. (c) Suspension for 120 days without pay of the directors/officers responsible for the violation.4139N (Reserved) Sec. concurrent Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 7 . pawnshops. GOCC.12. (3) Subsequent offense – (a) Fine of up to P30. unfair competitive advantage or conflict of interest situations to the detriment of others through the exercise by the same person or group of persons of undue influence over the policymaking and/or management functions of similar FIs while at the same time allowing banks. (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder. insurance agencies/brokers.4140N 07. there shall be no concurrent directorships between QBs or between a QB and a bank. QBs and NBFIs. credit card companies. Interlocking directorships While concurrent directorship may be the least prejudicial of the various relationships cited in this Section to the interests of the FIs involved. b. money changers. QBs shall refer to investment houses. or between a QB and a bank. holding companies. finance companies. trust entities and all other QBs while NBFIs shall refer to investment houses. government NBFIs.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder.16 . concurrent directorships between entities not involving an investment house shall be allowed in the following cases: (a) A bank and one (1) or more of its subsidiary bank/s. venture capital corporations. certain measures are still necessary to safeguard against the disadvantages that could result from indiscriminate concurrent directorship. and (2) Without the need for prior approval of the Monetary Board. NSSLAs. or body politic. there shall be no concurrent directorship and officership between QBs. investment companies. securities dealers/ brokers.§§ 4109N. and (b) A QB and an NBFI. mutual building and loan associations. Secs. 4140N Interlocking Directorships and/or Officerships. and between a QB and an NBFI. remittance agents and all other NBFIs without quasibanking functions. lending investors. finance companies. and (c) Revocation of the authority to act as trustee on any mortgage or bond issuance by any municipality. In order to safeguard against the excessive concentration of economic power. a. QBs and NBFIs without quasibanking functions to benefit from organizational synergy or economies of scale and effective sharing of managerial and technical expertise. (2) Without the need for prior approval of the Monetary Board. QB/s. trust entities. Interlocking directorships and officerships. For purposes of this Section. fund managers. asset management companies. insurance companies. the following rules shall be observed.31 (b) Suspension for ninety (90) days without pay for directors/officers responsible for the violation. FX dealers. In order to prevent any conflict of interest resulting from the exercise of directorship coupled with the reinforcing influence of an officer’s decision-making and implementing powers. (b) Suspension or revocation of the trust license. 4110N . a husband and his wife shall be considered as one (1) person. the following regulations shall govern interlocking directorships and/or officerships within the financial system consisting of banks. (4) Between a bank and not more than two (2) of its subsidiary bank/s.e.. and the need for effective and efficient management. That at least twenty percent (20%) of the equity of each of the banks.31 directorship and officership between a bank and one (1) or more of its subsidiary bank/s. QB/s. Considering the full-time nature of officer positions. may be allowed in the following cases: (1) Between a QB. (b) that any officer holding the positions of president. the difficulties of serving two (2) offices at the same time. or between a QB and an NBFI: Provided. other than investment house/s. Aforementioned concurrent officerships may be allowed. For this purpose. internal auditors. i. or a corporation. assistant corporate secretary and security officer. adequate justification shall be submitted to the Monetary Board. and NBFI/s. shall be allowed. other than investment house/s. the following rules shall be observed: As a general rule. QB/s and NBFI/s. between a QB and one (1) or more of its subsidiary QB/s and NBFI/s. QB/s.or majorityowned or controlled by such officer or his relatives enumerated above. concurrent officerships. or (6) Concurrent officership positions in the same capacity which do not involve management functions. subject to prior approval of the Monetary Board. A concurrent officership in different FIs may present more serious problems of selfdealing and conflict of interest. (5) Between a bank and not more than two (2) of its subsidiary QB/s. does not own in his/its own capacity more than twenty percent (20%) of the subscribed capital stock of the entities in which the QB has equity investments. Interlocking officerships. However. there shall be no concurrent officerships. and NBFI/s. association or firm wholly. and NBFI/s. other than an investment house. Multiple positions may result in poor governance or unfair competitive advantage. c.12. QBs and NBFIs is owned by a holding company or by any of the banks/QBs within the group. between QBs or between a QB and a bank or between a QB and an NBFI. N Regulations Page 8 (3) Between a QB and not more than two (2) of its subsidiary QB/s. and a bank. and NBFI/s. That at least twenty percent (20%) of the equity of each of the banks. Manual of Regulations for Non-Bank Financial Institutions . chief executive officer. including secondments. QB/s.§ 4140N 07. including secondments. (c) that the officer involved. other than an investment house. or his spouse or any of his relatives within the first degree of consanguinity or affinity or by legal adoption. other than investment house/s: Provided. and NBFIs. chief operating officer or chief financial officer may not be concurrently appointed to any of said positions or their equivalent. or between a QB. other than investment house/s. or between a bank and one (1) or more of its subsidiary QBs and NBFIs. or between bank/s. subject to the following conditions: (a) that the positions do not involve any functional conflict of interests. and (d) that where any of the positions involved is held on full-time basis. (2) Between two (2) QBs. and not more than two (2) of its subsidiary bank/s. QBs or NBFIs is owned by a holding company or a QB/bank and the interlocking arrangement is necessary for the holding company or the QB/bank to provide technical expertise or managerial assistance to its subsidiaries/ affiliates. secondment shall refer to the transfer/detachment of a person from his regular organization for temporary assignment elsewhere where the seconded employee remains the employee of the home employer although his salaries and other remuneration may be borne by the host organization. corporate secretary. or (4) Directors. (3) Persons who have been judicially declared insolvent. The following regulations shall govern the disqualification of directors and officers of institutions under the supervisory and regulatory powers of the BSP other than banks. 592 dated 28 December 2007) § 4140N. including subgroups or sub-committees. of the board of directors during their incumbency. officers or employees of closed institutions under the supervisory and regulatory powers of the BSP who were responsible for such institutions’ closure as determined by the Monetary Board. (2) Persons who have been convicted by final judgment of the court for violation of banking laws. This disqualification shall be in effect as long as the refusal persists. both regular and special. Permanently disqualified Directors/trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee position: (1) Persons who have been convicted by final judgment of the court for offenses involving dishonesty or breach of trust such as estafa. NSSLAs and pawnshops. forgery. b. recommend changes to the board based upon said performance/review. the following are disqualified from becoming directors: a. trustees. Temporarily disqualified Directors/trustees/officers/employees disqualified by the Monetary Board from holding a director/trustee position for a specific/indefinite period of time. (Circular No. § 4143N. whose duties include functions of management such as those ordinarily performed by regular officers. or any twelve (12)-month period during said incumbency. embezzlement. It shall be the responsibility of the Corporate Governance Committee to conduct an annual performance evaluation of the board of directors and senior management. Without prejudice to specific provisions of law prescribing disqualifications for directors.12. (2) Directors who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings. The provisions of this Section shall apply to persons appointed to such positions as representatives of the government or government-owned or controlled entities unless otherwise provided under existing laws. When a director or officer has multiple positions. Included are: (1) Persons who refuse to fully disclose the extent of their business interest to the appropriate department of the SES when required pursuant to a provision of law or of a circular.31 For purposes of this Section. if necessary. (Circular No.1 Persons disqualified to become directors. This disqualification applies for purposes of the succeeding election. shall likewise be considered as officers. the Committee should determine whether or not said director or officer is able to and has been adequately carrying out his/her duties and.4143N.§§ 4140N . QBs. extortion.1 Representatives of government. 4141N . 4143N Disqualification of Directors and Officers. spendthrift or incapacitated to contract. (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 9 .4142N (Reserved) Sec. 592 dated 28 December 2007) Secs. malversation. swindling and theft. memorandum or rule or regulation of the BSP. members of a group or committee.1 07. (4) Persons convicted for offenses involving dishonesty. on their request. (6) Directors and trustees disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. president. This disqualification applies until the lapse of the specific period of disqualification or N Regulations Page 10 upon approval by the Monetary Board on recommendation by the appropriate department of the SES of such directors’ election/reelection. 584 dated 28 September 2007) § 4143N. (As amended by Circular No. This disqualification shall be in effect as long as the delinquency persists. trustee or officer.12. from the Monetary Board after showing good and justifiable reasons. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity. (7) Persons dismissed from employment for cause. trustee or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor. Except as may be authorized by the Monetary Board or the Governor. the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of chairman. breach of trust or violation of banking laws but whose conviction has not yet become final and executory. b. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity or upon clearance.31 person with the institution where he/she is a director or officer. (8) Those under preventive suspension. executive vice president or any position of equivalent rank. chief cashier or chief accountant is disqualified from holding or being elected or appointed to any of said positions in the same NBFI. “(ii)” and “(iv)”. association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items “(i)”. or used for the benefit of a director.4143N. rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of a director/trustee/officer. 4308Q. (iii) Any person whose borrowings or loan proceeds were credited to the account of. or at least two (2) obligations with other FIs. (iv) A partnership of which a director. and the spouse or relative within Manual of Regulations for Non-Bank Financial Institutions .1 shall likewise apply to officers. general manager.2 07. (b) Obligations shall include all borrowings from any FI obtained by: (i) A director. or after the lapse of five (5) years from the time they were officially advised by the appropriate department of the SES of their disqualification.2 Persons disqualified to become officers a. trustees and officers of closed institutions under the supervisory and regulatory powers of the BSP pending their clearance by the Monetary Board. except those stated in Item “b(2)”. endorser or surety for loans from such FIs. treasurer. The disqualifications for directors mentioned in Subsec. or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership.1 . and (v) A corporation. (5) Directors. 4306S and 4303P. (ii) The spouse or child under the parental authority of the director. trustee or officer. X306. court.§§ 4143N. under different credit lines or loan contracts. are past due pursuant to Secs. 4143N. trustee or officer. Interpol and monetary authority (central bank) of other countries (for foreign directors and officers) involving violation of any law. and (9) Persons with derogatory records with the NBI. police. 31 the second degree of consanguinity or affinity of any person holding the position of manager. the concerned director or officer shall be given a period of thirty (30) calendar days within which to settle said obligation or. b. When there is evidence that a director/officer has committed irregularity. § 4143N. c. 4143N. d.§§ 4143N. Directors/ officers with pending cases/complaints shall also be included in said masterlist of temporarily disqualified persons upon approval by the Monetary Board until the final resolution of their cases. While the concerned institution may conduct its own investigation and impose appropriate sanction/s as are allowable. the director or officer concerned shall be notified in writing either by personal service or through registered mail with registry return receipt card at his/her last known address by the appropriate department of the SES of the existence of the ground for his/her disqualification and shall be allowed to submit within fifteen (15) calendar days from receipt of such notice an explanation on why he/ she should not be disqualified and included in the watchlisted file. restore it to its current status or. If the ground for disqualification is delinquency in the payment of obligation.2. the appropriate department of the SES shall proceed to evaluate the case. If the director/ officer is cleared from involvement in any Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 10a . The head of said department may allow an extension on meritorious ground. this shall be without prejudice to the authority of the Monetary Board to disqualify a director/officer/employee from being elected/appointed as director/officer in any FI under the supervision of the BSP. said failure to reply shall be deemed a waiver and the appropriate department of the SES shall proceed to evaluate the case based on available records/evidence. For directors/officers of closed banks.3 07. The director/officer concerned shall be afforded the opportunity to defend/clear himself/herself.3 Disqualification procedures a. together with the evidence in support of his/her position. the concerned department of the SES shall make appropriate recommendation to the Monetary Board clearing said directors/officers when there is no pending case/complaint or evidence against them. f.4143N.12. The board of directors and management of every institution shall be responsible for determining the existence of the ground for disqualification of the institution’s director/officer or employee and for reporting the same to the BSP. to explain why he/she should not be disqualified and included in the watchlisted file.1 and 4143N. e. cashier.2 . before the evaluation on his disqualification and watchlisting is elevated to the Monetary Board. On the basis of knowledge and evidence on the existence of any of the grounds for disqualification mentioned in Subsecs. If no reply has been received from the director/officer concerned upon the expiration of the period prescribed under Item “b” above. or accountant of a branch or office of an NBFI is disqualified from holding or being appointed to any of said positions in the same branch or office. Grounds for disqualification made known to the institution shall be reported to the appropriate department of the SES within seventy-two (72) hours from knowledge thereof. Upon receipt of the reply/ explanation of the director/officer concerned. the appropriate department of the SES shall make recommendation to the Monetary Board that his/her case be referred to the OSI for further investigation and that he/she be included in the masterlist of temporarily disqualified persons until the final resolution of his/her case. the appropriate department of the SES shall. Whenever a director/officer is cleared in the process mentioned under Item “c” above or. QB.5 07.4143N. The appropriate department of the SES may decide to recommend to the Monetary Board a penalty lower than disqualification (e. endeavor to establish the specific acts or omissions constituting the offense or the ultimate facts which resulted in the dismissal to be able to determine if the disqualification of the director/officer concerned is warranted or not.4 Effect of possession of disqualifications. if the director/officer concerned is found to be responsible for the closure of the institution. when the ground for disqualification ceases to exist.) if. shall vacate their respective positions immediately. Directors/officers elected or appointed possessing any of the disqualifications as enumerated herein. etc. h. “c” and “d” above. All other cases of disqualification.. It shall be the responsibility of the appropriate department of the SES to elevate to the Monetary Board the lifting of the disqualification of the concerned director/ officer and his/her delisting from the masterlist of watchlisted persons. whether permanent or temporary shall be elevated to the Monetary Board for approval and shall be subject to the procedures provided in paragraphs “a”. § 4143N. (As amended by Circular No. the concerned director/officer shall be informed by the appropriate department of the SES in writing either by personal service or through registered mail with registry return receipt card. as much as practicable. l. at his/her last known address of his/her disqualification from being elected/appointed as director/ N Regulations Page 10b officer in any FI under the supervision of BSP and/or of his/her inclusion in the masterlist of watchlisted persons so disqualified. 4143N. “b”.g. Upon approval by the Monetary Board. in its judgment the act committed or omitted by the director/officer concerned does not warrant disqualification. the concerned department of the SES shall recommend to the Monetary Board his/her delisting from the masterlist of temporarily disqualified persons and his/ her inclusion in the masterlist of permanently disqualified persons. shall be afforded the procedural due process prescribed above. The board of directors of the concerned institution shall be immediately informed of cases of disqualification approved by the Monetary Board and shall be directed to act thereon not later than the following board meeting.1 and 4143N.3 . suspension. Within seventy-two (72) hours thereafter. the corporate secretary shall report to the Governor of the BSP through the appropriate department of the SES the action taken by the board on the director/ officer involved. j.2. the appropriate department of the SES shall recommend to the Monetary Board his/her delisting. g. On the other hand. k. Persons who are elected or appointed as director or officer in any of the BSP-supervised institutions for the first time but are subject to any of the grounds for disqualification provided for under Subsecs.12. trust entity or any institution under the supervision of the BSP only upon prior approval by the Monetary Board. reprimand. If the disqualification is based on dismissal from employment for cause. i.5 (Reserved) Manual of Regulations for Non-Bank Financial Institutions .§§ 4143N. he/she would be eligible to become director or officer of any bank. 584 dated 28 September 2007) § 4143N. The evaluation of the case shall be made for the purpose of determining if disqualification would be appropriate and not for the purpose of passing judgment on the findings and decision of the entity concerned.31 irregularity. SES. institutions under the supervisory and regulatory powers of the Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 10c . FIs can gain access to information in the said watchlist for the sole purpose of screening their applicants for hiring and/or confirming their elected directors and appointed officers. b.. To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as trustee or officer of an institution under the supervisory and regulatory powers of the BSP. Delisting. Notification of directors/trustees/ officers/employees. actions or reports of the courts. i. the SES shall maintain a watchlist of disqualified directors/trustees/officers under the following procedures: a.6 07. or the Monetary Board. court. Confidentiality. except with the authority of the person concerned and with the approval of the Deputy Governor. NBI or any other administrative agencies shall first be approved by the Monetary Board. The prescribed authorization form to be submitted to the appropriate department of the SES is in Appendix Q-45. with registry return receipt card. institutions under the supervisory and regulatory powers of the BSP.§ 4143N. SES or the Governor or the Monetary Board. breach of trust and/or violation of banking laws becomes final and executory.31 § 4143N. FIs must obtain the said authorization on an individual basis. the inclusion of directors/trustees/officers/employees in watchlist disqualification files “A” and “B” on the basis of decisions. the concerned director/trustee/officer/employee shall be informed through registered mail. Upon recommendation by the appropriate department of the SES.Disqualification File “B” (Temporary) (a) After the lapse of the specific period of disqualification. (b) When the conviction by the court for crimes involving dishonesty. Watchlist categories. (2) Disqualification File “B” (Temporary) – Directors/trustees/officers/ employees temporarily disqualified by the Monetary Board from holding a director/ trustee/officer position. e. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist . Upon approval by the Monetary Board. All delistings shall be approved by the Monetary Board upon recommendation of the appropriate department of the SES except in cases of persons known to be dead where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. Inclusion of directors/trustees/ officers/employees in the watchlist. c. NBI. The BSP will disclose information on its watchlist files only upon submission of a duly accomplished and notarized authorization from the concerned person and approval of such request by the Deputy Governor. d. or (c) Upon favorable decision or clearance by the appropriate body.12. Watchlisting shall be categorized as follows: (1) Disqualification File “A” (Permanent) –Directors/trustees/officers/ employees permanently disqualified by the Monetary Board from holding a director/ trustee/officer position. Watchlisting shall be for internal use only and may not be accessed or queried upon by outside parties including such institutions under the supervisory and regulatory powers of the BSP.6 Watchlisting. at his last known address of his inclusion in the masterlist of watchlisted persons disqualified to be a director/trustee/officer in any institution under the supervisory and regulatory powers of the BSP. in which case the director/trustee/officer/employee is relisted to Watchlist – Disqualification File “A” (Permanent). the Governor.e. d.§§ 4143N. This regulation shall govern securities custodianship and securities registry operations of banks and NBFIs under BSP supervision.2 Applicability of this regulation. § 4144N.31 BSP. purchased.1 and whose only function is to maintain the stock and transfer book for shares of stock. 4144N. (As amended by CL-2007-001 dated 04 January 2007.6 . and CL-2006-046 dated 21 December 2006) Sec. or such other agency/body where the concerned individual had derogatory record. The application shall be signed by the highest ranking officer of the NBFI and shall be accompanied by a certified true copy of the resolution of the NBFI’s board of directors authorizing the NBFI to engage in securities custodianship and/or registry. 524 dated 31 March 2006) § 4144N.5 Pre-qualification requirements for a securities custodian/ registry a. It must have in place a comprehensive risk management system Manual of Regulations for Non-Bank Financial Institutions . whether exempt or required to be registered with the SEC.5 07. It must have a CAMELS composite rating of at least "4" (as rounded off) in the last regular examination. traded. It shall cover all their transactions in securities as defined N Regulations Page 10d in Section 3 of the SRC. It is the policy of the BSP to promote the protection of investors in order to gain their confidence and encourage their participation in the development of the domestic capital market. The guidelines to implement the delivery by the seller of securities to the buyer or to his designated third party custodian are shown in Appendix Q-38. held under custody or otherwise transacted in the Philippines where at least one (1) of the parties is a bank or an NBFI under BSP supervision. § 4144N. this regulation shall not cover the operations of stock and transfer agents duly registered with the SEC pursuant to the provisions of SRC Rule 36-4.12. M-2006009 dated 06 July 2006.4144N.29. § 4144N. c. The following rules and regulations shall govern securities custodianship and securities registry operations of NBFIs under BSP supervision. 4144N Securities Custodianship and Securities Registry Operations. Therefore. that are sold. It must have complied with the minimum capital accounts required under existing regulations not lower than an adjusted capital of P 300. However. the following rules and regulations are promulgated to enhance transparency of securities transactions with the end in view of protecting investors. § 4144N. b.0 million or such amounts as may be required by the Monetary Board in the future.1 Statement of policy. NBFIs under BSP supervision may act as securities custodian and/or registry only upon prior Monetary Board approval. Directors/trustees/officers/employees delisted from the Watchlist – Disqualification File “B” other than those upgraded to Watchlist – Disqualification File “A” shall be eligible for re-employment with any institution under the supervisory and regulatory powers of the BSP.3 Prior Bangko Sentral approval. borrowed.4 Application for authority A BSP-supervised entity desiring to act as securities custodian and/or registry shall file an application with the appropriate department of the SES. Violation of any provision of the guidelines in Appendix Q-38 shall be subject to the sanctions/penalties under Subsec. It must be an NBFI under BSP supervision. M-2006-002 dated 05 June 2006 and Circular No. (As amended by M-2007-002 dated 23 January 2007. (Next page is Page 11) Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 10e .5 05. appropriately structured risk limits. In this connection.12. a manual of operations (which includes custody and/or registry operations) and other related documents embodying the risk management system must be submitted to the appropriate department of the SES at the time of application for authority and within thirty (30) days from updates. adequate risk measurement systems. effective internal control and complete.§ 4144N. timely and efficient risk reporting systems.31 approved by its board of directors appropriate to its operations characterized by a clear delineation of responsibility for risk management. (3) Transaction flow. i. It must have adequate technological capabilities and the necessary technical expertise to ensure the protection. c. with the following: (1) ceilings on credit accommodation to DOSRI. and m. Securities borrowing and lending operations as agent.5 . k. f. deeds of assignment and court orders. but not limited to: (1) Standard custody/registry agreement and other standard documents. and In addition to the above basic functions. g. rules and regulations. further. It has no reserve deficiencies during the eight (8) weeks immediately preceding the date of application. such as: (1) It can maintain an electronic registry dedicated to recording of accountabilities to its clients. That the management of funds that may be collected shall be clearly defined in the custody contract or in a separate document or agreement attached thereto: Provided. Represents clients in corporate actions in accordance with the direction provided by the securities owner. Does earmarking of encumbrances or liens such as. safety and integrity of client assets.4144N. and (2) It has an updated and comprehensive computer security system covering system. and (c) provide for audit trail of transactions. (b) preserve data integrity. b. (2) Organizational structure of the custody/registry business. It has not been found engaging in unsafe and unsound practices during the last six (6) months preceding the date of application. It shall be conducted in a separate unit headed by a qualified person with at least two (2) years experience in custody/ registry operations. Confirms tax withheld. and (2) single borrower’s limit. but not limited to. as of date of application. sale and other instructions. It can interface with the clearing and settlement system of any recognized exchange in the country capable of achieving a real time gross settlement of trades. d. Safekeeps the securities of the client. network and telecommunication facilities that will: (a) limit access only to authorized users. e. a historical background for the past three (3) years. such as. That the custodian shall immediately make known to the securities owner all payments made and collections received with respect to the securities under custody. It has complied. f. Holds title to the securities in a nominee capacity. It has set up the prescribed allowances for probable losses. It has generally complied with laws.§§ 4144N. l.31 e.6 05. Executes purchase. h. Acts as a collecting and paying agent: Provided. orders or instructions of the Monetary Board and/or BSP Management. Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 11 . and j. g.12. during the period immediately preceding the date of application.6 Functions and responsibilities of a securities custodian A securities custodian shall have the following basic functions and responsibilities: a. Performs at least a monthly reconciliation to ensure that all positions are properly recorded and accounted for. § 4144N. it may perform the following value-added service to clients: i. j. It has submitted additional documents/information which may be requested by the appropriate SED. and (4) For those already in the custody or registry business. Conducts mark-to-market valuation and statement rendition. h. both general and specific. That securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be booked in the Trust Department. the authority. Issues registry confirmations for transfers of ownership as it occurs. The appropriate documentation for custodianship shall be made and it shall clearly define. if booked in the Trust Department: Provided. It is essential that custodians segregate customer securities from one another and from its proprietary holdings to protect the same from the claims of its general creditors. The custodian shall issue a custody confirmation to the purchaser or borrower of securities to evidence receipt or transfer of securities as they occur. Delivers confirmation of transactions and other documents within agreed trading periods. (5) Quantity. The governing custodianship agreement shall be pre-numbered and this number shall be referred to in all amendments and supplements thereto. A BSP-accredited securities registry must be a third party with no subsidiary/affiliate relationship with the issuer of securities while a BSP-accredited custodian must be a third party with no subsidiary/affiliate relationship with the issuer or seller of securities. N Regulations Page 12 fees and provision for succession in the event the custodian can no longer discharge its functions. but not limited to.8 Protection of securities of the customer. which may be requested by the parties.9 05.31 § 4144N. as a minimum. § 4144N. outstanding balances. c. An NBFI accredited by BSP as securities custodian may. Confirmation of custody. the following information on the securities under custody: (1) Owner of securities. b. (4) Identification or serial numbers. d. responsibilities.4144N. The custodian shall prepare at least quarterly (or as frequent as the owner of securities will require) securities statements delivered to the registered owner’s address on record.12. Periodic reporting. among others. b. role. and (7) Other information. Said statement shall present detailed information such as. however.§§ 4144N. Maintains an electronic registry book.9 Independence of the registry and custodian. where the purchaser is a related entity acting in its own behalf and not as agent or representative of another. (6) Face value. and e. Accounting and recording for securities.7 . (3) Securities type. A custodian must incorporate the following procedures in the discharge of its functions in order to protect the securities of the customer: a. Manual of Regulations for Non-Bank Financial Institutions . It shall contain. inventory of securities. d. Follows appropriate legal documentation to govern its relationship with the Issuer. continue holding securities it sold under the following cases: a.7 Functions and responsibilities of a securities registry a. It shall be accepted in writing by the counterparties. c. (2) Issuer. Custodians must employ accounting and safekeeping procedures that fully protect customer securities. Prepares regular statement of securities balances at such frequency as may be required by the owner on record but not less frequent than every quarter. All securities held under custodianship shall be recorded in the books of the custodian at the face value of said securities in a separate subsidiary ledger account “Securities Held Under Custodianship” if booked in the Bank Proper or the subsidiary ledger account “Safekeeping and Custodianship – Securities Held Under Custodianship”. Documentation. § 4144N. and market values. A. operated by the Bureau of the Treasury.4144N. However. A BSP accredited custodian must maintain accounts only in the true and full name of the owners of the security. however. where the purchaser is an insurance company whose custody arrangement is either governed by a global custody agreement where the NBFI is designated as custodian or sub-custodian or by a direct custody agreement with features at par with the standards set under this Subsection drawn or prepared by the parent company owning more than fifty percent (50%) of the capital stock of the purchaser and executed by the purchaser itself and its custodian.12 Compliance with antimoney laundering laws/regulations.31 b. which is acting as a registry for government securities is deemed to be automatically accredited for purposes of this Section and is likewise exempted from the independence requirement under Subsec.000 whichever is higher. be subject to all other provisions of this Subsection. whichever comes earlier.13 05. Securities subject of pledge and/or deed of assignment as of 14 October 2004 (date of Circular 457).9 . record keeping and reporting of suspicious transactions.13 Basic security deposit Securities held under custodianship whether booked in the Trust Department or carried in the regular books of the NBFI shall be subject to a security deposit for faithful performance of duties at the rate of 1/25 of one percent (1%) of the total face value or P500. otherwise known as the “Anti-Money Laundering Act of 2001. A BSPaccredited securities custodian/registry shall not disclose to any unauthorized person any information relative to the securities under its custodianship/registry.9. Book entry transfer to a sub-account for clients under the primary account of the seller shall not constitute delivery for purposes of this Section. However. That it maintains a record of such referral together with the minimum identification. a BSP-accredited custodian may rely on referral by the seller/ issuer of securities: Provided. may be held by a lending NBFI up to the original maturity of the loan or full payment thereof. However. said securities owners may be identified by number or code in reports and correspondences to keep his identity confidential.11 Confidentiality. For purposes of compliance with the requirements of R. § 4144N. Purchases by non-residents and insurance companies that are exempted from the independence requirement of this Subsection shall. particularly the provisions regarding customer identification. No. 9160.12. information/documents required under the law and its implementing rules and regulations. securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be subject to a higher basic Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 13 . The management shall likewise ensure the confidentiality of client accounts of the custody or registry unit from other units within the same organization. 4144N.” as amended. § 4144N. and c. securities registered under the RoSS shall only be considered delivered if said securities were transferred by means of book entry to the appropriate securities account of the purchaser or his designated custodian. upon approval by the BSP.10 Registry of Scripless Securities of the Bureau of the Treasury The Registry of Scripless Securities (RoSS). § 4144N. § 4144N. where the purchaser is a nonresident with existing global custody agreement governed by foreign laws and conventions wherein the NBFI is designated as custodian or sub-custodian.§§ 4144N. Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37. § 4144N. 344 – An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings. 7653. Secs.4144N. b. establishment or public utility.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. which shall include as a minimum.000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected. shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building. shopping centers or establishments. Second offense (1) Fine of up to P20.31 security deposit of one percent (1%) of the total face value.13 .12. No. c.A. and (2) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. For this purpose. sports and recreation centers and complexes. public parking places. the following subsidiary ledger account shall be created in the Trust Department Books: “Safekeeping and Custodianship Securities Held Under Custodianship with Securities Borrowing and Lending As Agent” Compliance shall be in the form of government securities deposited with the BSP eligible pursuant to existing regulations governing security for the faithful performance of trust and other fiduciary business.4157N 05.000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected. such architectural facilities or structural features as shall reasonably enhance the Manual of Regulations for Non-Bank Financial Institutions . 4157N Batas Pambansa Blg. N Regulations Page 14 Sec. Establishments And Public Utilities To Install Facilities And Other Devices. violation of any provision of this Section shall be subject to the following sanctions/ penalties: a. First offense – (1) Fine of up to P10. repair or renovation of public and private buildings for public use. 4151N – 4156N (Reserved) §§ 4144N.14 Reportorial requirements An accredited securities custodian shall comply with reportorial requirements that may be prescribed by the BSP. The rules of procedure on administrative cases involving directors and officers of quasibanks in Sec. Secs. Institutions. respectively.28 (Reserved) § 4144N. of the R. airports. workplaces. educational institutions. Subsequent offenses– (1) Fine of up to P30.§§ 4144N. 4145N – 4149N (Reserved) Sec. 4150N Rules of Procedure on Administrative Cases Involving Directors and Officers of Trust Entities.29 Sanctions. and (3) Suspension for one hundred twenty (120) days without pay of the directors/ officers responsible for the violation. (2) Suspension or revocation of the authority to act as securities custodian and/ or registry. 4150Q shall apply to directors and officers of trust entities. no license or permit for the construction. and (2) Reprimand for the directors/ officers responsible for the violation. public utilities. the face and market value of securities held under custodianship. In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they live and the enjoyment of the opportunities available to other citizens.15 . railings and the like. financial/non-financial allied/non-allied subsidiaries/associates. Secs.e. It is in this light that the BSP aims to adopt all PFRS and PAS issued by the ASC to the greatest extent possible. institutions.. Financial/non-financial allied/non-allied associates shall be accounted for using the equity method in accordance with the provisions of PAS 28 “Investments in Associates”. while insurance and non-financial allied subsidiaries shall be accounted for using the equity method. 4172N shall in all respect be PFRS/PAS compliant: Provided. 572 dated 22 June 2007 and 494 dated 20 September 2004) Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 15 . Accounting treatment for prudential reporting. the present value of the future cash flows of the financial instrument discounted using the market interest rate). Other NBFIs not performing quasibanking functions shall adopt the PFRS and PAS which are in accordance with generally accepted accounting principles in recording transactions and in the preparation of financial statements and reports to BSP. The difference between the fair value and the net proceeds of the loan shall be recorded under “Unearned Income-Others”. However. b. transparency and accuracy in financial reporting. It is the policy of the BSP to promote fairness. In preparing consolidated financial statements. all such existing buildings. which shall be amortized over the term of the loan using the effective interest method. That FIs shall submit to the BSP adjusting entries reconciling the balances in the financial statements for prudential reporting with that in the audited annual financial statements. For purposes hereof. which shall be accounted for in accordance with PAS 8. the PFRS/PAS shall refer to issuances of the ASC and approved by the PRC. “b” and “c”. FIs shall be required to meet the BSP recommended valuation reserves. FIs shall adopt in all respect the PFRS and PAS except as follows: a. ramps. The provisions on government grants shall be applied retroactively to all outstanding government grants received. or public utilities may be renovated or altered to enable the disabled persons to have access to them. and c. in cases where there are differences between BSP regulations and PFRS/PAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the PFRS/PAS. 4158N-4160N (Reserved) Sec. only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated on a line-by-line basis. shall also be accounted for using the equity method. For purposes of preparing separate financial statements. FI that adopted an accounting treatment other than the foregoing shall consider the adjustment as a change in accounting policy. including insurance subsidiaries/associates. establishments.31 mobility of disabled persons such as sidewalks.§§ 4157N . 4161N Philippine Financial Reporting Standards/Philippine Accounting Standards Statement of policy. Government grants extended in the form of loans bearing nil or low interest rates shall be measured upon initial recognition at its fair value (i. If feasible.4161N 07. Notwithstanding the exceptions in Items “a”.12. the option or limit prescribed by BSP regulations shall be adopted by banks. For prudential reporting. (As amended by Circular Nos. the audited annual financial statements required to be submitted to the BSP in accordance with the provision of Sec. delay or default shall start to run on the day following the next working day. For purposes of this Subsection. § 4162N. by-laws. or material documents to the appropriate department of the SES within fifteen (15) days following such change. 4162N governing the frequency and deadlines indicated in Appendix N-1 shall be automatically moved to the next business day whenever a half-day suspension of Manual of Regulations for Non-Bank Financial Institutions . Any change in.2 Manner of filing. SES. BSP. or by sending them by registered mail or special delivery through private couriers unless otherwise specified in the circular or memorandum of the BSP. should the last day of filing fall on a non-working day in the locality where the reporting FI is situated. 4162N Reports.1 Categories and signatories of reports. (2) Willful delay in the submission of reports shall refer to the failure of an NBFI to submit a report on time. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having been submitted. Reports submitted by NBFIs in computer media shall be subject to the same requirements. Appendix N-2 prescribes the signatories for each report category and the requirements on signatory authorization. including strike or lockout affecting an NBFI as defined in the Labor Code or national emergency affecting operations of NBFIs.3 07. Definition of terms. § 4162N. or amendment to. b. NBFIs without quasi-banking functions but are subsidiaries/affiliates of banks and QBs and investment houses without quasi-banking functions but with trust operations shall submit to the appropriate department of the SES the reports listed in Appendix N-1 in the forms as may be prescribed by the Deputy Governor. N Regulations Page 16 § 4162N.31 Sec. NBFIs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. The submission of the reports shall be effected by filing them personally with the appropriate department of the SES or with the BSP Regional Offices/Units. Fines for willful delay in submission of reports.4162N. However. shall not be considered as willful delay. by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation. the following definitions shall apply: (1) Report shall refer to any report or statement required of an NBFI to be submitted to the BSP periodically or within a specified period. Reports required to be submitted to the BSP are classified into Categories A-2 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix N-1.§§ 4162N . Failure to submit a report on time due to fortuitous events.3 Sanctions in case of willful delay in the submission of reports a. The due date/deadline for submission of reports to BSP as prescribed under Sec. For Categories A-2 reports Per day of default until the report is filed P300 For Category B reports Per day of default until the report is filed P 60 Delay or default shall start to run on the day following the last day required for the submission of reports. II. such as fire and other natural calamities and public disorders. the articles of incorporation.12. senior auditor or audit manager. Transaction testing and assessment of specific internal control procedures. evaluate and improve the effectiveness of risk management. shall be considered as the date of filing by the NBFI. Professional competence as well as continuing training and education shall be required to face up to the increasing complexity and diversity of the institution’s operations. Review of the management and financial information systems. The internal auditor of subsidiaries and/ or affiliates of a TB. etc. findings. and h. Review of the compliance system and the implementation of established policies and procedures. He must possess the knowledge. as well as to access any records.12. For purposes of establishing delay or default. objective assurance and consulting function established to examine. § 4164N. (As amended by Circular No.4164N. Review of the system of assessing capital in relation to the estimate of organizational risk. floods. e. The scope of internal audit shall include: a. b. The internal audit function must be independent of the activities audited and from day-to-day internal control process. f. The internal auditor of subsidiaries and/or affiliates of a UB or a KB must be a CPA and must have at least five (5) years experience in the regular audit (internal or external) of a UB or KB as auditorin-charge. and governance processes of an organization. § 4164N. QB. Examination and evaluation of the adequacy and effectiveness of the internal control systems. 4163N (Reserved) Sec. appraisals and other information to the appropriate level of management. as the case may be. c. 4164N Internal Audit Function Internal audit is an independent. skills. within fifteen (15) calendar days from receipt of the statement of account from the appropriate department of the BSP. the date of acknowledgment by the appropriate department of the SES or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted. pay the fines imposed thereon for willful delay on the submission of reports. g. It must be free to report audit results. Review of the systems and procedures of safeguarding assets. Review of the application and effectiveness of risk management procedures and risk assessment methodologies. opinions. files or data whenever relevant to the exercise of its assignment. including the electronic information system and electronic banking services. internal control.3 Qualification standards of the internal auditor. d. § 4164N. Manner of payment or collection of fines – NBFIs shall. or the date of mailing postmarked on the envelope/the date of registry/special delivery receipt. The Audit Committee or senior management should take all necessary measures to provide the appropriate resources and staffing that would enable internal audit to achieve its objectives. trust entity or Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 17 . 585 dated 15 October 2007) Sec.1 Status. Assessment of the accuracy and reliability of the accounting system and of the resulting financial reports. and other competencies to examine all areas in which the institution operates. It shall have authority to directly access and communicate with any officer or employee. c.3 07.2 Scope.§§ 4162N.31 business operations in government offices is declared due to an emergency such as typhoon.3 . to examine any activity or entity of the institution. ) and other supplemental standards issued by regulatory authorities/ government agencies. in lieu thereof. NBFIs shall cause an annual financial audit by an external auditor acceptable to the BSP not later than thirty (30) calendar days after the close of the calendar year or the fiscal year adopted by the FI.org. subsidiaries and affiliates engaged in allied activities. trust entities. national cooperative banks.§§ 4164N. A qualified internal auditor of a UB or a KB shall be qualified to audit TBs. and other FIs under BSP supervision. management of internal audit. trust entity or national coop bank as auditor-in-charge. N Regulations Page 18 performance of audit work. 4172N Financial Audit.3 . such as the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing (e-mail: standards@theiia. and (3) other information that may be required by the BSP. scope of work. (2) reconciliation statement between the AFS and the balance sheet and income statement for FI and trust department submitted to the BSP including copies of adjusting entries on the reconciling items.4 Code of Ethics and Internal Auditing Standards. The internal auditor of subsidiaries and/ or affiliates of an RB. The internal auditor should conform with the Code of Professional Ethics for CPAs and ensure compliance with sound internal auditing standards. trust entities. a Certification under oath stating that no material weakness or breach in the internal Manual of Regulations for Non-Bank Financial Institutions . RBs. NSSLA or local coop bank or. quality assurance reviews. QB. (b) date of submission of the financial audit report and certification under oath stating that no material weakness or breach in the internal control and risk management systems was noted in the course of the audit of the FI to the board of directors. Web: http:// www. professional proficiency.12. RBs. Secs. NSSLA or local cooperative bank must be at least an accounting graduate with two (2) years experience in external audit or in the regular audit of an RB. subsidiaries and affiliates engaged in allied activities. If no material weakness or breach is noted to warrant the issuance of an LOC. at least three (3) years experience in the regular audit (internal or external) of a UB or KB as auditorin-charge. senior auditor or audit manager or. § 4164N. senior auditor or audit manager. 4165N . and other FIs under BSP supervision. NSSLAs.4171N (Reserved) Sec.org.theiia. In addition. A qualified internal auditor of a TB or national coop bank shall likewise be qualified to audit QBs. Report of such audit shall be submitted to the board of directors and the appropriate department of the SES not later than 120 calendar days after the close of the calendar year or the fiscal year adopted by the FI. local coop banks. The standards address independence and objectivity. QBs. NSSLAs. at least one (1) year experience in the regular audit (internal or external) of a UB. a LOC indicating any material weakness or breach in the institution’s internal control and risk management systems within thirty (30) calendar days after submission of the financial audit report.31 national cooperative bank must be a CPA with at least five (5) years experience in the regular audit (internal or external) of a TB. trust entity or national cooperative bank as auditor-in-charge. the external auditor shall be required by the FI to submit to the board of directors. in lieu thereof. and (c) the absence of any direct or indirect financial interest and other circumstances that may impair the independence of the external auditor. KB. QB.4172N 06. senior auditor or audit manager. communication and monitoring of results. local coop banks. The report to the BSP shall be accompanied by the: (1) certification by the external auditor on the: (a) dates of start and termination of audit. TB. 31 control and risk management systems was noted in the course of the audit of the FI shall be submitted in its stead. that results in more than a remote likelihood that a material misstatement of the financial statements will not be detected or prevented by the entity’s internal control. A material weakness does not mean that a material misstatement has occurred or will occur. Material weakness shall be defined as a significant control deficiency. or combination of deficiencies. but that it could occur. A control deficiency exists when the design or operation of a control does not allow management or employees.§ 4172N 06.12. together with the financial audit report. in the normal course of performing their assigned (Next page is Page 19) Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 18a . That when warranted by supervisory concern such as material weakness/breach in internal control and/ or risk management systems. The board of directors of said institutions.” FIs as well as external auditors shall strictly observe the requirements in the submission of the financial audit report and reports required to be submitted under Appendix Q-33. to prevent or detect misstatements on a timely basis. Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 19 . The resolution shall show. further. that adversely affects the entity’s ability to initiate. process. among other things. the names of the directors present and absent. at the expense of the institution concerned: Provided. shall consider and act on the AAR.12. and (3) other information that may be required by the BSP. privatization. including their subsidiaries and affiliates. as well as other FIs under BSP supervision which are under the concurrent jurisdiction of the COA shall be exempt from the aforementioned annual financial audit by an acceptable external auditor: Provided. a copy of its resolution to the appropriate department of the SES. as well as on the comments and observations and shall submit. authorize. within thirty (30) banking days after receipt thereof. submit a copy of the AAR of the COA to the appropriate department of the SES within thirty (30) banking days after receipt of the report by the board of directors. (2) reconciliation statement between the AFS in the AAR and the balance sheet and income statement of the FI and trust department submitted to the BSP. including the comments and observations and the names of the directors present and absent. loans from multilateral financial institutions. including copies of adjusting entries on the reconciling items. among other things.§ 4172N 06. a copy of its resolution together with said LOC to the appropriate department of SES. but not limited to. The board of directors. however. in a regular or special meeting. shall consider and act on the financial audit report and the certification under oath submitted in lieu of the LOC and shall submit. The AAR shall be accompanied by the: (1) certification by the institution concerned on the date of receipt of the AAR by the board of directors. the Monetary Board may. require the financial audit to be conducted by an external auditor acceptable to the BSP. The resolution shall show the action(s) taken on the report. record. The board shall likewise consider and act on the LOC and shall submit. The term more than remote likelihood shall mean that future events are likely to occur or are reasonably possible to occur. upon recommendation of the appropriate department of the SES. among other things.31 functions. within thirty (30) banking days after receipt of the reports. The LOC shall be accompanied by the certification of the external auditor of the date of its submission to the board of directors. A significant deficiency is a control deficiency. the actions(s) taken on the reports and the names of the directors present and absent. or public listing warrant. Government-owned or controlled banks. within thirty (30) banking days after receipt of the report. a copy of its resolution to the appropriate department of the SES. The resolution shall show the action(s) taken on the findings and recommendations and. the financial audit of the concerned institution by an acceptable external auditor may also be allowed. or report financial data reliably in accordance with generally accepted accounting principles. in a regular or special meeting. or combination of control deficiencies. That when circumstances such as. Banks and other FIs under the concurrent jurisdiction of the BSP and COA shall. 540 dated 09 August 2006) Secs. 8791. (Circular No. Under Section 58. statements of cash flows and notes to financial statements which shall include among other information. Appointment and Reporting Requirements for External Auditors. Sanction. the BSP hereby prescribes the rules and regulations that shall govern the selection. QBs. NSSLAs. The SES shall make an annual assessment of the performance of external auditors and will recommend deletion from the list even prior to the three (3) year renewal period. reporting requirements and delisting for external auditors of banks. The AFS of NBFIs with subsidiaries shall be presented side by side on a solo basis (parent) and on a consolidated basis (parent and subsidiaries). their subsidiaries and affiliates engaged in allied activities and other financial institutions which under special laws are subject to BSP supervision. That FIs shall submit to the BSP adjusting entries reconciling the balances in the financial statements for prudential reporting with that in the audited annual financial statements. appointment. BSP selected external auditors shall apply for the renewal of their selection every three (3) years. FIs shall post in conspicuous places in their head offices.§§ 4172N . 540 dated 09 August 2006) § 4172N. 554 dated 22 December 2006 and 540 dated 09 August 2006) §4172N. No.2 Posting of audited financial statements. For purposes of this Section. Manual of Regulations for Non-Bank Financial Institutions . and/or trust entities. 4173N – 4179N (Reserved) N Regulations Page 20 Sec. (Circular No. their latest financial audit report. The selection of external auditors shall be valid for a period of three (3) years.31 The audited annual financial statements required to be submitted shall in all respect be PFRS/PAS compliant: Provided. The following rules shall govern the utilization and submission of AFS of NBFIs. if based on assessment. R. the external auditors’ report did not comply with BSP requirements. Effectivity. 4162N. disclosure of the volume of past due loans as well as loanloss provisions.12. delayed submission of which shall be subject to the penalties under Subsec.4180N 06. income statements. 4180N Selection. The reports and certifications of institutions concerned. It is the policy of the BSP to promote high ethical and professional standards in public accounting practice and to encourage coordination and sharing of information between external auditors and regulatory authorities of banks.3 (As amended by Circular Nos. In furtherance of this policy and to ensure that reliance by regulatory authorities and the public on the opinion of external auditors is well placed. statements of changes in equity. and/or trust entities to ensure effective audit and supervision of these institutions and to avoid unnecessary duplication of efforts. On the other hand. AFS shall include the balance sheets. QBs. financial audit report shall refer to the AFS and the opinion of the auditor.A. NSSLAs. schedules and attachments required under this Subsection shall be considered Category B reports. all their branches and other offices. as well as in their respective websites. the Monetary Board may require subsidiaries and affiliates of banks and QBs to engage the services of an independent auditor to be chosen by the subsidiaries and affiliates of banks and QBs concerned from a list of CPAs acceptable to the Monetary Board.1 Audited Financial Statements of NBFIs. The provisions of Items “A” and “B” of Appendix N-5 shall likewise apply for each application for renewal. In case of partnership. 4182N . The applicable sanctions/ penalties prescribed under Sections 36 and 37 of R. 610 dated 26 May 2008. and/or trust entities.12. 7653 to the extent applicable shall be imposed on the trust entity. No.4192N 08. the BSP may require within twenty (20) working days from receipt of call letter. its audit committee and the directors approving the hiring of external auditors who are not in the BSP list of selected auditors for banks. For purposes of separate financial statements. b. Sanctions. trust entities or NSSLAs for regular audit or special engagements. QBs. shall govern the PCA taken on FIs to the extent applicable. investments in financial/non-financial allied/non-allied subsidiaries/associates.4189N (Reserved) Sec. Erring external auditors may also be reported by the BSP to the PRC for appropriate disciplinary action.31 External auditors who meet the requirements specified in this Section shall be included in the list of BSP selected external auditors. The rules on outsourcing of banking functions as shown in Appendix Q-37 shall be adopted in so far as they are applicable to FIs. (As amended by Circular No. 4190N Duties and Responsibilities of NBFIs and their Directors/Officers in All Cases of Outsourcing of NBFI Functions. The BSP will circularize to all banks. inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. 4191N (Reserved) Sec. including insurance subsidiaries/ associates. or by analogy. Rules and regulations. NSSLAs. The rules and regulations to govern the selection and delisting by the BSP of external auditors of trust entities and banks’/QBs’/ trust entities’ subsidiaries and affiliates engaged in allied activities and other financial institutions are shown in Appendix N-5. A. and/or retaining the services of the external auditor in violation of any of the provisions of this Section and for non-compliance with the Monetary Board directive under Item “I” in Appendix N-5. 529 dated 11 May 2006) Sec. (As amended by Circular No. 596 dated 11 January 2008.§§ 4180N . QBs. shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks. The BSP. Financial/non-financial allied/non-allied associates shall be accounted for using the equity method in accordance with the provisions of PAS 28 “Investments in Associates”. 523 dated 31 March 2006) Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 20a . a. shall be accounted for using the equity method. 4192N Prompt Corrective Action Framework. in any newspaper of general circulation in the country in the prescribed format. 494 dated 20 September 2004) Secs. QBs. 4181N Publication Requirements The quarterly CSOC of a trust entity and its subsidiaries and affiliates shall be published side by side with the statement of condition of its head office and its branches/other offices as of such dates as Sec. except that for purposes of consolidated financial statements. while insurance and non-financial allied subsidiaries shall be accounted for using the equity method. The framework for the enforcement of PCA on banks which is in Appendix Q-40. however. trust entities and NSSLAs the list of selected external auditors once a year. or for hiring. The CSOC of a QB/trust entity and its subsidiaries and associates shall conform with the guidelines of PAS 27 “Consolidated and Separate Financial Statements”. 548 dated 25 September 2006 and 543 dated 08 September 2006) (Circular No. only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated on a line-by-line basis. (As amended by Circular Nos. (Circular No. Market risk should be reviewed together with other risks to determine overall risk profile. specific application will depend on the size and sophistication of a particular FI and the nature and complexity of its activities. plate. Credit card. 545 dated 15 September 2006) Secs. aligned with global best practices.1 Definition of terms a. The BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair dealings with customers. Towards this end. coupon book or other credit device Manual of Regulations for Non-Bank Financial Institutions . measure.4200N (Reserved) Secs. complexity and range of activities undertaken by individual FIs. measure. FIs are expected to have an integrated approach to risk management to identify. 4195N Liquidity Risk Management The guidelines on liquidity risk management for QBs as shown in Appendix Q-44 shall govern the liquidity risk management of FIs to the extent applicable. specific application will depend to some extent on the size. Liquidity risk should be reviewed together with other risks to determine overall risk profile.1 06. General Policy. The BSP will review the risks to ensure that an FI’s internal risk management processes are integrated and comprehensive. The guidelines set forth the expectations of the BSP with respect to the management of risks and are intended to provide more consistency in how the risk-focused supervision function is applied to these risks. 544 dated 15 September 2006) N Regulations Page 20b Sec. monitor and control risks. monitor and control risks. The guidelines set forth the expectations of the BSP with respect to the management of liquidity risk and are intended to provide more consistency in how the risk-focused supervision function is applied to this risk. (Circular No. (Circular No.4300N (Reserved) Sec. 4193N Supervision by Risks. 4194N Market Risk Management The guidelines on market risk management for QBs as shown in Appendix Q-43 shall govern the market risk management of FIs to the extent applicable. monitor and control risks shall govern the supervision by risks of FIs to the extent applicable. 4201N . FIs are expected to have an integrated approach to risk management to identify.4301N. The BSP is aware of the increasing diversity of financial products and that industry techniques for measuring and managing market risk are continuously evolving. measure. The BSP shall foster the development of consumer credit through innovative products such as credit cards under conditions of fair and sound consumer credit practices. The guidelines on supervision by risk in Appendix Q-42 which provide guidance on how QBs should identify.§§ 4193N . The guidelines set forth the expectations of the BSP with respect to the management of market risk and are intended to provide more consistency in how the risk-focused supervision is applied to this risk. 4196N . As such. § 4301N. the following rules and regulations shall govern the credit card operations of subsidiary/affiliate credit card companies of banks/QBs. All FIs should follow the guidance in risk management efforts. 510 dated 03 February 2006) Sec.12. These guidelines are intended for general application. 4301N Credit Card Operations. the guidelines are intended for general application.31 Sec. Means any card. b. if any. subsidiary/ affiliate credit card companies of banks/QBs are required to establish an appropriate system for managing risk exposures from credit card operations which shall be documented in a complete and concise manner. Shall mean non-payment of.1 . Written policies. or other similar contracts.4301N. (3) Common stockholders owning at least ten percent (10%) of the outstanding voting stock of each financial institution and the entity. e. d. or payment of any amount less than. Acceleration clause. c. or (4) Management contract or any arrangement granting power to the bank or other financial institution to direct or cause the direction of management and policies of the entity.2 Risk management system To safeguard their interests. labor or services on credit.2 05. Solicitation and application processing. penalties. d. whether by permanent or temporary proxy or voting trust. Shall mean any provision in the contract between the bank and the cardholder that gives the bank the right to demand the obligation in full in case of default or non-payment of any amount due or for whatever valid reason. control or power to vote. the “Total Amount Due” for the particular billing period as reflected in the monthly statement of account may be considered in default or delinquent. controlled or held with the power to vote by a bank or other financial institution. f.§§ 4301N. (Next page is Page 21) Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 20c . processing/ service fees and other charges. Default or delinquency. in which case. Represents the total outstanding balance of credit cardholders arising from purchases of goods and services. Requirements for application. A f f i l i a t e r e f e r s t o a n e n t i t y linked directly or indirectly to a bank or other financial institution through any one (1) or a combination of any of the following: (1) Ownership. procedures and internal control guidelines shall be established on the following aspects of credit card operations: a. the “Minimum Amount Due” or “Minimum Payment Required” within two (2) cycle dates.31 existing for the purpose of obtaining money. c. by a bank or other financial institution of at least ten percent (10%) or more of the outstanding voting stock of the entity. b. except in cases involving independent directors as defined under existing regulations. annual membership/renewal fees as well as interest. (2) any amount which is part of any fixed monthly installment that is charged to the card. Pre-approved cards. accounting. Minimum amount due or minimum payment required. or vice-versa. property. cash advances. policies and procedures and internal control. The risk management system shall cover the organizational set-up.12. § 4301N. records and reports. and (4) all past due amounts. insurance fees. Means the minimum amount that the credit cardholder needs to pay on or before the payment due date for a particular billing period/cycle as defined under the terms and conditions or reminders stated in the statement of account/billing statement which may include: (1) total outstanding balance multiplied by the required payment percentage or a fixed amount whichever is higher. Subsidiary refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. (3) any amount in excess of the credit line. or vice-versa. Determination and approval of credit limits. Credit card receivables. g. (2) Interlocking directorship or officership. including the time period. for installment loans. late payment/penalty fees or similar delinquency-related charges payable in the event of late payments. Cash advances. l. and q. The net take home pay of applicants who are employed. as the case may be. b.4301N. d.12. Subsidiary/affiliate credit card companies of banks/quasi-banks shall disclose to each person to whom the credit card privilege is extended in the agreement. the following information: a. especially those solicited by third party representatives/ agents. the default.2 . n. Handling of accounts for write-off. non-finance charges. distribution and activation of cards. Supplementary or extension cards. upgrade or downgrade of credit limit. m. ownership and location of residence and motor vehicle ownership shall be determined and used as basis for setting credit limits. Renewal of cards. within which any credit extended may be repaid without interest. Issuance. loan amortizations and other deductions.§§ 4301N. § 4301N. individually itemized. or the net worth or cash flow inferred from deposits of those who are neither employed nor engaged in trade or business or the credit behavior exhibited by the applicant from his other existing credit cards. on the outstanding balance of the obligation. e. shall undergo a strict credit risk assessment process and the information stated thereon validated and verified by persons other than those handling marketing.4 Information to be disclosed. All credit card applications. which are paid or to be paid by the cardholder in connection with the transaction but which are not incident to the extension of credit. subsidiary/ affiliate credit card companies of banks/ quasi-banks must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments. the conditions under which interest may be imposed. the method of determining the balance upon which interest and/or delinquency charges may be imposed.3 Minimum requirements Before issuing credit cards. Collection of past due accounts. p. f. k. g. Accounts of DOSRI and employees. c. premium contributions. Deferred payment program or special installment plans. or other lifestyle indicators such as but not limited to club memberships. h. the effective interest rate per annum. the percentage that the interest bears to the total amount to be financed expressed as a simple monthly or annual rate. Disposition of errors and/or questions about the billing statement/statement of account and other customers’ complaints. contract or any equivalent document governing the issuance or use of the credit card or any amendment thereto or in such other statement furnished the cardholder from time to time. i. the number of installments.4 05. j. § 4301N. amount and due dates or periods of payment schedules to repay the indebtedness. o. f.31 e. Dealings with marketing agents/ collection agents. prior to the imposition of the charges and to the extent applicable. Lost or stolen cards and their replacement. Billing and payments. cancellation and withdrawal or termination of card. The gross monthly income may also be used provided reasonable deductions are estimated for income taxes. the net monthly receipts of those engaged in trade or business. Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 21 . Suspension. g. credit investigation fees and attorney’s fees. Subsidiary/affiliate credit card companies of banks/quasi-banks shall keep strictly confidential the data on the cardholder or consumer. such as membership/ renewal fees. c. submission or exchange of customer information with other financial institutions.5 Interest accrual on past due loans. except under the following circumstances: a. That said late payment or penalty fees may be based on the total outstanding balance of the credit card obligation. each such rate. The bank and the cardholder may.12.. the method of determining the amount of interest and/or delinquency charges. their subsidiaries and affiliates.4301N. other fees. § 4301N. § 4301N. credit information bureaus. b.9 Confidentiality of information. collection fees. the range of balances to which it is applicable. k. or under such Manual of Regulations for Non-Bank Financial Institutions . MASTERCARD and/or VISA International rates on the day the item was processed/posted to the billing statement. processing fees.6 Finance charges.4 . § 4301N. for dual currency accounts (peso and dollar billings). The amount of finance charges in connection with any credit card transaction shall refer to interest charged to the cardholder.31 h.g.7 Deferral charges. credit card issuers. disclosure of information is with the consent of the cardholder or consumer. plus mark-up. § 4301N. and/or other currency conversion charges and costs arising from the purchase by the card company of foreign currency to settle the customer’s transactions shall also be disclosed. where one (1) or more periodic rates may be used to compute interest. prior to the consummation of the transaction. Interest income on past due loans arising from discount amortization (and not from the contractual interest of the accounts) shall be accrued as provided in PAS 39. That late payment or penalty fees shall be based on the unpaid minimum amount due or a prescribed minimum fixed amount: Provided. No late payment or penalty fee shall be collected from cardholders unless the collection thereof is fully disclosed in the contract between the issuer and the cardholder: Provided. as well as payments made by credit cardholders in any currency other than the billing currency: the application of payments. and the corresponding simple annual rate. if the contract between the issuer and the cardholder contains an “acceleration clause” and the total outstanding balance of the credit card is classified and reported as past due. agree in writing to a deferral of all or part of one or more unpaid installments and the bank may collect a deferral charge which shall not exceed the rate previously disclosed pursuant to the provisions on disclosure.9 05. definition or general description of verifiable blended exchange/conversion rates (e. the manner of conversion from the transaction currency and payment currency to Philippine pesos or billing currency. if any) including conversion commission. N Regulations Page 22 § 4301N. i. for transactions made in foreign currencies and/or outside the Philippines.8 Late payment/penalty fees. including amounts payable under installment terms or deferred payment schemes. upon orders of court of competent jurisdiction or any government office or agency authorized by law. release.§§ 4301N. and j. further. including any minimum or fixed amount imposed as interest and/or delinquency charge. collection agencies. termination of effectivity and reactivation. counsels and other agents of the bank or card company to enforce its rights against the cardholder.12 Offsets. Subsidiary/ affiliate credit card companies of banks/QBs shall formulate criteria or parameters for suspension. disclosure to collection agencies. § 4301N. counsels and other agents may resort to all reasonable and legally permissible means to collect amounts due § 4301N. if circumstances warrant. Subsidiary/affiliate credit card companies of banks/QBs. disclosure to third party service providers solely for the purpose of assisting or rendering services to the bank or card company in the administration of its credit card business. For purposes of transparency and adequate disclosure. contract or any equivalent document governing the issuance or use of the credit card that. and the cardholder from fraud or unauthorized charges.13 Handling of complaints Subsidiary/affiliate credit card companies of banks/QBs shall give cardholders at least twenty (20) calendar days from statement date to examine charges posted in his/her statement of account and inform the credit card company in writing of any billing error or discrepancy. the credit card issuer shall inform/notify the credit cardholder in the agreement.4301N. as amended the use of his credit card will subject his deposit/s with the bank to offset against any amount/s due and payable on his credit card which have not been paid in accordance with the terms of the agreement/contract. Nothing in this Subsection shall be construed to prohibit any action by the bank/subsidiary credit card company to collect any amount which has not been indicated by the cardholder to contain a billing error or apply against the credit limit of the cardholder the amount indicated to be in error.12. Not later than two (2) billing cycles or two (2) months which in no case shall exceed ninety (90) days after receipt of the notice and prior to taking any action to collect the contested amount. d. banks/subsidiary credit card companies shall make appropriate corrections in their records and/or send a written explanation or clarification to the cardholder after conducting an investigation. solely for the purpose of insuring the bank from cardholder default or other credit loss. Within ten (10) calendar days from receipt of such written notice. revocation and reactivation of the right to use the card and shall include in their contract with cardholders a provision authorizing the issuer to suspend or terminate its effectivity. § 4301N. e.§§ 4301N. disclosure to third parties such as insurance companies. the credit card company shall send a written acknowledgement to the cardholder unless the action required is taken within such ten (10)-day period.31 conditions as may be prescribed by the Monetary Board.14 05. Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 23 . § 4301N. and f. pursuant to the provisions of Articles 1278 to 1290 of the New Civil Code of the Philippines. or any part thereof.14 Unfair collection practices.10 Suspension.11 Inspection of records covering credit card transactions Subsidiary/affiliate credit card companies of banks/QBs shall make available for inspection or examination by the appropriate department of the SES complete and accurate files on card applicant/cardholder to support the consideration for approval of the application and determination of the credit limit which shall be in accordance with the verified debt repayment ability and/or net worth of the card applicant/cardholder. § 4301N.9 . 4303N Updating of Information Provided to Credit Information Bureaus FIs which have provided adverse information. and c. or any organization performing similar functions. communicating or threat to communicate to any person credit information which is known to be false. and g. the following conduct is a violation of this Subsection: a. The following regulations shall be observed in the grant of loans and other credit accommodations.A.A. 7653. except as allowed under Subsec. c. or profane language which amount to a criminal act or offense under applicable laws. threat to take any action that cannot legally be taken. Sec. Penalties and sanctions provided under Sections 36 and 37 of R. it shall be the responsibility of the reporting FIs to ensure that their disclosure of any information about their borrowers/clients is with the consent of borrowers/clients concerned. 4304N – 4311N (Reserved) Sec. insults. 7653. 589 dated 18 December 2007) § 4301N. 4301N. d. reputation. including failure to communicate that a debt is being disputed. Without limiting the general application of the foregoing. That in the exercise of their rights and performance of duties. (Circular No.M. Credit card receivables shall be classified in accordance with age as follows: No.15 Sanctions. or property of any person.M. Management may therefore formulate additional specific guidelines.12. Disqualification of the bank concerned from the credit facilities of the BSP except as may be allowed under Section 84 of R.4312N 07. the use or threat of violence or other criminal means to harm the physical person. No. 4312N Grant of Loans and Other Credit Accommodations.. disclosure of the names of credit cardholders who allegedly refuse to pay debts. to credit information bureaus.§§ 4301N. they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous or untoward acts. b.180 Doubtful 181 or more Loss The foregoing is the minimum classification requirement. such as the past due or litigation status of loan accounts. Violations of the provisions of this Section shall be subject to any or all of the following sanctions depending upon their severity: a.9. f. making contact at unreasonable/ inconvenient times or hours which shall be defined as contact before 6:00 A. the use of obscenities.120 Substandard 121 . shall submit monthly reports to these bureaus or organizations on the full payment or settlement of the previously reported accounts within five (5) business days from the end of the month when such full payment was received. For this purpose.14 . unless the account is past due for more than sixty (60) days or the cardholder has given express permission or said times are the only reasonable or convenient opportunities for contact. Sec.31 them under the credit card agreement: Provided. e. No. b. Prohibition of the bank concerned from the extension of additional credit accommodation against personal security. or after 10:00 P. N Regulations Page 24 Secs. Manual of Regulations for Non-Bank Financial Institutions . of days past due Classification 91 . any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a cardholder. 4302N Classification of Credit Card Receivables. endorser. weekly. The required submission of additional documents shall cover loans. and credit lines granted. an NBFI must ascertain that the borrower. for relatively short periods of time (180 days) and often featuring joint and several guarantees of one (1) or more persons. the NBFI may terminate any loan or other credit accommodation granted on the basis of said document(s) and shall have the right to demand immediate repayment or liquidation of the obligation. including any availment and/or re-availment against existing credit lines. semi-monthly or monthly basis. if applicable. victims of calamities and disasters. depending on the cash flow conditions of the borrowers. Said loans are usually unsecured. renewed or extended after 02 November 2006. if applicable. if the borrower is engaged in business.1 General guidelines Consistent with safe and sound business practices. as defined in the Social Reform and Poverty Alleviation Act of 1997 (R. Before granting loans or other credit accommodations. (2) Loans to registered BMBEs. workers in the formal and informal sector. migrant workers. co-maker. This represents small loans granted to the basic sectors such as farmer-peasant. and urban poor. women. an NBFI shall obtain adequate information on his/their credit standing and financial capacities.12.A. and c. artisanal fisher folk. youth and students. except: (1) Microfinance loans. b. The consistency of the data/figures in said ITRs and financial statements shall also be checked and considered in the evaluation of the financial capacity and creditworthiness of credit applicants. 8425). For this purpose. No. indigenous peoples and cultural communities.§ 4312N. the NBFI may seek redress from the court for any harm done by the borrower’s submission of spurious documents. differentlyabled persons. Moreover. A waiver of confidentiality of client information and/or an authority of the NBFI to conduct random verification with the BIR in order to establish authenticity of the ITR and accompanying financial statements submitted by the client. senior citizens. restructured. Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 25 .000 and may be amortized on a daily. The waiver of confidentiality of client information and/or an authority of the NBFI to conduct random verification with the BIR need not be submitted annually since once submitted these documents remain valid unless revoked. A copy of the latest ITR of the borrower and his co-maker. The maximum principal amount of microfinance loans shall not exceed P150. (4) Loans secured by hold-outs on or assignment of deposits or other assets considered non-risk by the Monetary Board. The documents under Items “a” and ”b” above shall be required to be submitted annually for as long as the loan and/or credit accommodation is outstanding. surety and/ or guarantor. an NBFI shall require from the credit applicant the following: a. (3) Interbank loans.1 08. other credit accommodations. and other loans granted to poor and low-income households for their microenterprises and small businesses. Should the document(s) submitted prove to be spurious or incorrect in material detail. Except as otherwise provided by law and in other regulations. In addition to the usual information sheet about the borrower. is/are financially capable of fulfilling his/their commitments to the NBFI.31 § 4312N. an NBFI shall grant loans or other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operation to be financed. a copy of the borrower’s latest financial statements as submitted for taxation purposes to the BIR. children. duly stamped as received by the BIR. Notwithstanding the preceding sentence. Consumer loans is defined to include housing loans. with original amounts not exceeding P2. 2. the proceeds of a loan or other credit accommodation may be utilized by the borrower for a purpose(s) other than Manual of Regulations for Non-Bank Financial Institutions . an NBFI shall ascertain the purpose of the loan or other credit accommodation which shall be clearly stated in the application and in the contract between the NBFI and borrower. must have a value of up to P3. No. as follows: (a) Individuals whose gross compensation income does not exceed their total personal and additional exemptions. or whose compensation income derived from one (1) employer does not exceed P60. and (d) An individual who is exempt from income tax pursuant to the provisions of the NIRC and other laws. as may be applicable at the time the loans were granted. otherwise. or extensions or availment/ re-availment against existing credit lines: Provided. 9257. whose only source of income is compensation and the corresponding taxes on which has been withheld at source: Provided. No. loans for payment of educational and hospital bills. plant and equipment are situated. salary loans and loans for personal consumption. Before granting a loan or other credit accommodation.A.000 and the income tax on which has been correctly withheld.31 (5) Loans to individuals who are not required to file ITRs under BIR regulations.0 million. furniture and fixtures.4312N. partnership or corporation whose total assets. That the borrowers submitted. restructured. agribusiness and/or services whether single proprietorship. Consumer loans. (As amended by Circular Nos. in lieu of the ITR. and 549 dated 09 October 2006) § 4312N. in relation to the provisions of the NIRC or the Tax Reform Act of 1997. renewal. Loans to micro and small enterprises which are not specifically exempted from the additional documentary requirements specified under the third paragraph of this Subsection shall be exempted from said additional documentary requirement up to 31 December 2011.0 million. the NBFI may terminate the loan or other credit accommodation and demand immediate repayment of the obligation. loans for purchase of car. household appliance(s). inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office.0 million and P15. or as may be defined by the MSME Development Council or other competent government agency. a copy of their Employer’s Certificate of Compensation Payment/Tax Withheld (BIR Form 2316) or their payslips for at least three (3) months immediately preceding the date of loan application. including credit card loans. That these loans are supported by ITRs or by BIR Form 2316 or payslips for at N Regulations Page 26 least three (3) months immediately preceding the date of loan application. or extended. For purposes of this Section. are exempted from updating requirements or the required annual submission of the same requirements forwarded during the initial submission under this Subsection but not in their restructuring.1.2 08. (b) Those whose income has been subjected to final withholding tax. 7432.2 Purpose of loans and other credit accommodations. as amended by R. The proceeds of a loan or other credit accommodation shall be utilized only for the purpose(s) stated in the application and contract. and financial statements submitted for taxation purposes to the BIR.A. renewed.§§ 4312N. (c) Senior citizens not required to file a return pursuant to R. Micro and small enterprises shall be defined as any business activity or enterprise engaged in industry. respectively. general or special. and (6) Loans to borrowers. cooperative. the following definitions shall apply: 1.12. 622 dated 16 September 2008. its political subdivisions and instrumentalities as well as GOCCs. 4313N Bank DOSRI Rules and Regulations Applicable to Government Borrowings in Government-Owned Or -Controlled Financial Institutions. and (2) corporations where the Republic of the Philippines. subject to the following clarifications: a. 7653. No. and/or guarantees granted to participating financial institutions (PFIs) in the lending programs of the government wherein the funds borrowed are intended for relending to other PFIs or end-user borrowers. That such utilization shall be with prior written approval of duly authorized officer(s)/committee/board of directors of the lending NBFI and such written approval shall form part of the contract between the NBFI and the borrower. and/or GOCCs own at least twenty percent (20%) of the subscribed capital stock shall be considered indirect borrowings of the Republic of the Philippines and shall form part of the individual ceiling as well as the aggregate ceiling: Provided.12. except that a co-maker is not required when the principal borrower has the financial capacity and a good track record of paying his obligations. to the extent applicable.4313N 08. further. 622 dated 16 September 2008) § 4312N. shall be excluded from the thirty percent (30%) ceiling on unsecured loans under Secs. (As amended by Circular No. Any violation of the provisions of this Section shall be subject to the sanctions provided under Sections 36 and 37 of R. and/or guarantees granted for the purpose Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 26a . and/or guarantees for the purpose of undertaking priority infrastructure projects consistent with the Medium-Term Development Plan/Medium-Term Public Investment Program of the National Government. (2) Loans. other credit accommodations. Loans.A.3 Prohibited use of loan proceeds. at least one (1) co-maker.§§ 4312N. shall also apply to loans.4 Signatories. The provisions of Secs.2 . and (3) Loans. Loans. duly certified as such by the Secretary of Socio-Economic Planning. NBFIs shall require that loans and other credit accommodations be made under the signature of the principal borrower and. Sec. its agencies/departments/ bureaus.5 Sanctions. and/or guarantees to: (1) GOCCs. other credit accommodations. b. NBFIs are prohibited from requiring their borrowers to acquire shares of stock of the lending NBFI out of the loan or other credit accommodation proceeds from the same NBFI. other credit accommodations. its agencies/departments/bureaus. (Circular No. and guarantees to the Republic of the Philippines and/or its agencies/departments/ bureaus shall be considered: (1) non-risk. other credit accommodations. and/or GOCCs own at least twenty percent (20%) of the subscribed capital stock.31 that originally stated in the application and contract: Provided. other credit accommodations. other credit accommodations. other credit accommodations. and/or guarantees to GOCCs and corporations where the Republic of the Philippines. and guarantees granted to the National Government or Republic of the Philippines. That such other purpose(s) is/are among those for which the lending NBFI may grant loans and other credit accommodations under existing laws and regulations: Provided. 622 dated 16 September 2008) § 4312N. (Circular No. and (2) not subject to any ceiling. X330 and X331 of the MORB: (1) Loans. 622 dated 16 September 2008) § 4312N. in the case of unsecured loans and other credit accommodations to an individual borrower. X326 to X337 of the Manual of Regulations for Banks (MORB). That the following loans. hence. and Manual of Regulations for Non-Bank Financial Institutions . and guarantees to the borrowing government entity other than the Republic of the Philippines. other credit accommodations. and (2) not subject to any ceiling. Loans. the BSP shall be considered an independent entity. (Circular No. other government entities. (Circular No. not a related interest of the Republic of the Philippines and/or its agencies/departments/bureaus. subject to certain limitations provided by law. N Regulations Page 26b other credit accommodations. other government entities. d. accounting procedures. for purposes of these regulations. valuation. 622 dated 16 September 2008) Secs. Fines of P2. and/or (ii) rediscounting and guarantee facilities for loans granted to the said sector or enterprises. not related interests of the Republic of the Philippines and/or its agencies/department/ bureaus. and h. 616 dated 30 July 2008. other credit accommodations and guarantees of the BSP shall be considered: (1) non-risk. A director of the lending institution shall be excluded in the deliberation as well as in the determination of majority of the directors in cases of loans. g.4391N 08. in addition to the requirements of Section 4312N. hence. and from one another due to the full autonomy in the exercise of their proprietary functions and in the management of their economic enterprises granted to them under the Local Government Code of the Philippines. 4391N Investments in Debt and Marketable Equity Securities. sales and transfers of investments in debt securities and marketable equity securities shall be in accordance with the guidelines in Appendices Q-20 and Q-20-a. 514 dated 06 March 2006 as amended by Circular Nos. The grant. officer or stockholder under existing DOSRI regulations. hence. renewal.000/day to be imposed on NBFIs for each violation. other credit accommodations. Penalties and sanctions. and/or guarantees granted to state universities and colleges (SUCs) shall be excluded from the thirty percent (30%) ceiling on unsecured loans under Secs. although GOCCs shall be considered separate from the Republic of the Philippines.31 of providing (i) wholesale and retail loans to the agricultural sector and MSMEs. The following penalties and sanctions shall be imposed on FIs and concerned officers found to violate the provisions of these regulations: a. not a related interest of the Republic of the Philippines and/or its agencies/departments/bureaus. and 580 dated 09 September 2007) Sec. restructuring or extension of unsecured loans shall. 7653 and the independence prescribed under the Constitution. The classification. be made under the signature of the principal borrower and at least one (1) co-maker. No. except that a co-maker is not required when the principal borrower has the financial capacity and a good track record of paying his obligations.A.12. and guarantees to the Republic of the Philippines and/or its agencies/departments/bureaus. reckoned from the date the violation was committed up to the date it was corrected. A director who acts as a government representative in the lending institution shall not be excluded in the deliberation as well as in the determination of majority of the directors in cases of loans. 4315N-4390N (Reserved) Sec. Loans. and from one another due to their fiscal independence from the National Government. 4314N Loans Against Personal Security. Local Water Districts (LWDs). departments or bureaus where said director is also a director. In view of the fiscal autonomy granted under R.§§ 4313N . f. X330 and X331 of the MORB. its agencies. e. 635 dated 10 November 2008. LGUs shall be considered separate from the Republic of the Philippines. c. c.A.3 Applicability of other laws/ regulations. and its implementing rules and regulations.3 08. d. No.§§ 4391N . The following rules and regulations shall govern the registration and operations of foreign exchange dealers (FXDs)/money changers (MCs) and/or remittance agents: § 4511N. shall refer to persons or entities that offer to remit. Copy of business license/permit from the city or municipality having territorial jurisdiction over the place of establishment and operation. Incorporation papers duly authenticated by the SEC (for corporation/ partnership). the term money changers. must be duly supported by the following documents: a.4511N. transfer or transmit money on behalf of any person to another person and/ or entity.A. Sanctions to be imposed on concerned officers: (1) First offense – reprimand the officers responsible for the violation. on the other hand. remittance companies and the like. No. and (2) Subsequent offenses – suspension of ninety (90) days without pay for officers responsible for the violation. partner.4400N (Reserved) Secs. 7653 and R.31 b. A certificate of registration to act as FXD/MC or remittance agent shall be issued by the BSP and shall become the basis for an electronic registry of all BSPregistered FXDs/MCs and remittance agents in the country. Qualified persons or non-bank institutions wishing to act as FXDs/MCs and/or remittance agents are required to register with the BSP before they can operate as such. That an application for registration supported by documents mentioned above has been filed within ninety (90) calendar days from 12 May 2005. money transmission agents. particularly on customer identification. 9160. 626 dated 23 October 2008 and 585 dated 15 October 2007) Secs. 4501N .1 Registration.4500N (Reserved) Secs. FXDs/MCs and remittance agents are subject to the provisions of R. Remittance agents. Appendix N-8) to strictly comply with the requirements of all relevant laws. These include money or cash couriers. § 4511N. shall refer to those regularly engaged in the business of buying and/or selling foreign currencies. Appendix N-8). Notarized Deed of Undertaking (Item “B”. Any additional document which the BSP may require from time to time. or copy of the certificate of registration duly authenticated by the Department of Trade and Industry (DTI) (for single proprietorship). § 4511N.12. 4511N Foreign Exchange Dealers/ Money Changers and/or Remittance Agents Operations.2 Application for registration The application for a certificate of registration to act as FXD/MC and/or remittance agent. 4392N . rules and regulations. List of stockholders/partners/ proprietor/directors/principal officers as the case maybe. in the prescribed form (Item “A”. and e. FXDs/MCs and remittance agents existing prior to 12 May 2005 (effectivity date of Circular 471 dated 24 January 2005) may continue to operate as such: Provided. 4401N . signed either by the owner. For this purpose. b. 628 dated 31 October 2008. president or officer of equivalent rank. interchangeably referred to as foreign exchange dealers. 476 dated 16 February 2005 as amended by Circular Nos. record keeping and reporting of covered Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 26c . (Circular No.4510N (Reserved) Sec. as amended. The provisions of this Section shall also apply to officers appointed after the issuance of the certificate of registration. b. The amount of foreign currencies sold shall be indicated in the official receipts both in words and in figures. A daily record of foreign exchange transactions shall be maintained where all foreign exchange sale and purchase transactions shall be posted chronologically. The staff serving the particular transaction as well as the person buying/selling foreign currency shall sign in their usual signatures on the receipt.12.4 Required seminar/training Prior to the issuance of the certificate of registration. the officer(s) as well as the personnel directly involved in foreign exchange operations shall attend a seminar on the requirements of the Anti-Money Laundering Act (AMLA) particularly on customer identification. record keeping and reporting of covered and suspicious transactions.5 Sale and purchase of foreign currencies by FXDs/MCs. and accountable forms in case of purchases. The officer(s) in-charge and the personnel who attended the required seminar shall echo the said training to all employees within thirty (30) calendar days from such attendance or as new employees are hired. shall be issued in numerical order to evidence sale/purchase of foreign currencies.3 .31 transactions and suspicious transactions as well as those which may hereafter be issued. c. to be conducted by the AMLC or by any of its recognized or accredited service providers.4511N. § 4511N. in case of sales. Official receipts. § 4511N.5 05.§§ 4511N. The following minimum procedures shall be observed on sale and purchase of foreign currencies by FXDs/MCs: a. (Next page is Page 27) N Regulations Page 26d Manual of Regulations for Non-Bank Financial Institutions . when combined. A sample of application to sell/purchase foreign currencies is shown in Item “C”. For individual customers – (1) Date (2) Printed name and signature of customer (3) Present address (4) Permanent address (5) Date and place of birth (6) Telephone number (7) Nationality (8) Amount and currency sold/ purchased in words and figures (9) Source of foreign currency/ies or purpose of purchase b.5 . amount to more than US$5.000 or its equivalent to the same client. There is deemed to be splitting of foreign exchange if the FXD/MC sells foreign exchange to any one purchaser within a fifteen (15) banking day period. FXDs/ MCs shall require the seller or buyer of foreign currency to fill up and sign an application form. Foreign exchange transactions shall be conducted only at the entity’s principal place of business and other authorized branches. For individual customers (1) Date (2) Printed name and signature of remitter (3) Present address (4) Permanent address (5) Date and place of birth (6) Telephone number (7) Nationality Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 27 . d. All copies of cancelled receipts shall be marked and stamped “CANCELLED” for internal control purposes.000 or its equivalent. which shall contain the following minimum data and information: a.8 05. FXDs/MCs shall require the presentation of a government-issued identification document such as SSS/GSIS/voter’s ID. For subsequent transactions with the same corporate client. § 4511N. Appendix N-8. § 4511N.31 The daily record shall be kept on file at the FXD/MC premises and shall be available for AMLC inspection/examination any time. RAs shall maintain accurate and meaningful originator information on funds transferred/remitted by requiring the sender/remitter to fill up and sign an application form.6 Application to sell/purchase foreign currencies by FXDs/MCs. § 4511N.8 Requirements for remittance agents.4511N. As a means of further identification.§§ 4511N. in such individual amounts which. For corporate/juridical customers – In addition to a signed application containing the applicable information in Item “a” above. FXDs/MCs shall see to it that this limit on the sale of foreign exchange is not breached by the splitting of a foreign exchange purchase into smaller amounts so as to make it appear that the purchase does not violate the prescribed limit.12. which shall contain the following minimum data and information: a.) in case of sale of foreign exchange exceeding US$5. FXDs/MCs need not require submission of additional documents enumerated in Item “b” above unless there are changes thereto. Appendix N-8. photocopies of the following documents shall be required: (1) Articles of incorporation/ partnership (2) By-Laws (3) Official address or principal business address (4) List of directors/partners/ principal stockholders (5) Authority and identification of the person purporting to act in behalf of the client. and e.7 Additional requirement FXDs/MCs shall require a notarized application together with supporting documents (Item “D”. driver’s license or passport. Other violations of the provisions/ requirements in this Section Penalties and sanctions which may be imposed by the AMLC Manual of Regulations for Non-Bank Financial Institutions . covered transactions shall refer to transactions in cash or other equivalent monetary instrument involving a total amount in excess of P500. Watchlisting of partners/principal officers b. FXDs/MCs and RAs are required to submit to the AMLC a report on covered transactions and suspicious transactions within five (5) banking days from the date of said transaction or from date the FXDs/MCs and RAs gained information that the transaction was done for the purpose of laundering proceeds of criminal or other illegal activities or from the time the FXDs/ MCs and RAs had reasonably suspected that said transactions were entered into for the purpose of laundering proceeds of criminal and other illegal activities. Any transaction that is similar. information/ documents required under the law and its implementing rules and regulations. 7653.A. purpose or economic justification. RAs shall require the presentation of a government-issued identification document such as SSS/GSIS/voter’s ID. For corporate/juridical customers In addition to a signed application containing the applicable information in Item “a” . is being or has been committed.8 . As a means of further identification. regardless of amount.00 within one (1) banking day while suspicious transactions are transactions. Any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution. b. driver’s license or passport.10 . Taking into account all known circumstances. That the RA maintains a record of such referral together with the minimum identification. No. or g. The amount involved is not commensurate with the business or financial capacity of the client.31 (8) Amount and currency to be remitted (9) Source of foreign currency (10) Name of and relationship with beneficiary/ies b. § 4511N. d. For purposes of compliance with the requirements. f. where any of the following circumstances exists: a. e. Monetary penalties and other sanctions for the following violations committed by erring FXDs/MCs and RAs may be imposed: Nature of Violation/ Exception Sanctions/Penalties a. The transaction is in any way related to an unlawful activity or any money laundering activity or offense under the AMLA that is about to be.000. There is no underlying legal or trade obligation. Violation of any of the provisions of R. The client is not properly identified.§§ 4511N. it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the AMLA. a photocopy of the authority and identification of the person purporting to act in behalf of the client shall be required.Operating without prior BSP registration Applicable penalties under Section 36 of R.4511N.14 (Reserved) § 4511N. No. analogous or identical to any of the foregoing. For this purpose. 9160.A. c. as amended and its IRR Applicable penalty prescribed under the Act c.15 Sanctions.16 05.9 AMLC reportorial requirements.4511N.12. an RA may rely on the referral of its office/correspondent bank abroad: Provided. N Regulations Page 28 § 4511N. 4601N Fines and Other Charges. They shall be meted with one (1)-time monetary penalty on a per transaction basis. their directors and/or officers and the payment of such penalties or fines and other charges by these entities: a. “per day” and/or “a day” as used in this Manual. For this purpose the terms “per banking day”. (Circular No. The following are the guidelines on the imposition of monetary penalties on NBFIs. Payment of penalties or fines. omissions or transactions entered into in violation of laws. If the balance of the concerned NBFI’s DDA is insufficient to cover the amount of the penalty. Monetary Board directives. said penalty shall already be subject to an additional charge of six percent (6%) per annum to be reckoned from the business day immediately following the end of said Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 29 . BSP rules and regulations.§§ 4511N. c. its directors and/or officers shall become due and payable fifteen (15) calendar days from receipt of the Statement of Account from the BSP. Late payment of monetary penalty shall be subject to an additional charge of six percent (6%) per annum to be computed from the time said penalty becomes due and payable up to the time of actual payment.1 07. They shall be penalized on a per calendar day basis from the time the acts were committed/omitted or the transactions were effected up to the time they were corrected/rectified.4600N (Reserved) Sec. The following regulations shall govern imposition of monetary penalties on NBFIs. 4512N .12. their directors and/or officers and the payment of such penalties or fines and other charges by these entities . penalties which remain unpaid after the lapse of the fifteen-day period shall be automatically debited against their corresponding DDA on the following business day without additional charge. the following definitions are adopted: (1) Continuing offenses/violations are acts. b. For banks which maintain DDA with the BSP. (3) Continuing penalty refers to the monetary penalty imposed on continuing offenses/violations on a per calendar day basis reckoned from the time the offense/ violation occurred or was committed until the same was corrected/rectified. in violation of laws. Monetary Board directives. (4) Transactional penalty refers to a one (1)-time penalty imposed on a transactional offense/violation. 585 dated 15 October 2007) §4601N. The computation of the period or duration of all penalties shall be based on calendar days.16 Industry association Membership in an existing association of BSP-registered FXDs/MCs as well as RAs is encouraged. omissions or transactions entered into. “per business day”. and orders of the Governor which persist from the time the particular acts were committed or omitted or the transactions were entered into until the same were corrected/rectified by subsequent acts or transactions.31 § 4511N.16 . and orders of the Governor which cannot be corrected/rectified by subsequent acts or transactions. The penalty approved by the Governor/MB to be imposed on the NBFI.1 Guidelines on the imposition of monetary penalties. Basis for the computation of the period or duration of penalty. Definition of terms. Secs.4601N. BSP rules and regulations. and other BSP rules and regulations shall mean “per calendar day” and/or “calendar day” as the case may be. (2) Transactional offenses/violations are acts. For purposes of the imposition of monetary penalties. Additional charge for late payment of monetary penalty. including FXDs/MCs and RAs. c. as defined herein: a. That the same is filed with the appropriate department of the SES within fifteen (15) calendar days from receipt of the Statement of Account/billing letter. Transfer/remittance fee – charge for processing/sending the remittance from the country of origin to the country of destination and/or charge for receiving the remittance at the country of destination. Exchange rate differential/spread – foreign exchange mark-up or the difference between the prevailing BSP reference/ guiding rate and the exchange/conversion rate.21. peso-dollar rate. Other currency conversion charges commissions or service fees. 4602N (Reserved) Sec. postage. d.4659N (Reserved) Sec. (Circular No. b. 494 dated 20 September 2004) Secs.. d. NBBSEs that may subsequently be authorized to engage in FX forwards and swaps as dealers shall be covered by the provisions under Subsecs. Other related charges–e. The running of the penalty period in case of continuing penalty and/or the period for computing additional charge shall be interrupted from the time the appeal or request for reconsideration was received by the appropriate department of the SES up to the time that the notice of the Monetary Board decision was received by the NBFI/individual concerned. 591 dated 27 December 2007) Secs. 4653N Accounting for Financial Institution Premises. if any.26. enhancing access to formal remittance channels in the source and destination countries. 4603Q. Plant and Equipment. The appeal or request for reconsideration on the monetary penalty approved by the Governor/Monetary Board shall be elevated to the Monetary Board for resolution/decision. f. (Circular No. and 4603Q. Appeal or request for reconsideration..g. surcharges. its directors and/or officers shall be allowed: Provided. A one (1)-time appeal or request for reconsideration on the monetary penalty approved by the Governor/ Monetary Board to be imposed on the NBFI. e. NBFIs under BSP supervision. 4604N . strengthening the financial infrastructure.14 to 4603Q. providing overseas remittance services shall disclose to the remittance sender and to the recipient/beneficiary.4652N (Reserved) Sec. furniture. Towards this end. 585 dated 15 October 2007) Sec.” (Circular No.exact amount of money the recipient should receive in local currency or foreign currency.31 fifteen (15)-day period up to the day of actual payment. 4660N Disclosure of Remittance Charges and Other Relevant Information It is the policy of the BSP to promote the efficient delivery of competitively-priced remittance services by banks and other remittance service providers by promoting competition and the use of innovative payment systems.12.§§ 4601N. e. fixture and equipment shall be accounted for using the N Regulations Page 30 cost model under PAS 16 “Property. 4654N . deepening the financial literacy of consumers. consistent with sound practices. text message or telegram. Amount/currency paid out in the recipient country .4660N 07.g. The appropriate department of the SES shall evaluate the appeal or request for reconsideration of the NBFI/individual and make recommendations thereon within thirty (30) calendar days from receipt thereof. Exchange rate – rate of conversion from foreign currency to local currency.1 . Other Fixed Assets FI premises. and improving transparency in remittance transactions. and Manual of Regulations for Non-Bank Financial Institutions . the following minimum items of information regarding remittance transactions. 4603N Non-Bank BSP Supervised Entities. the term official authority shall refer to any of the following: (1) Government of the Republic of the Philippines. AFP. Under the Anti-Money Laundering Act of 2001.4695N 08. as falling under the definition of transaction. (2) Its political subdivisions and instrumentalities. For purposes of this Section. as amended. The following guidelines govern the acceptance of valid ID cards for all types of financial transactions by NBFIs. 9160. The foregoing shall be in addition to the customer identification requirements under Rule 9. and (t) Company IDs issued by private entities or institutions registered with or supervised or regulated either by the BSP..A.12. and (4) Private entities or institutions registered with or supervised or regulated either by the BSP or SEC or IC. including financial transactions involving OFWs. They shall require their clients to submit an updated photo and other relevant information whenever the need for it arises. particularly those residing in the remote areas. HDMF IDs) (q) Certification from the NCWDP (r) DSWD certification (s) IBP ID. (Circular No. (3) GOCCs. a financial transaction is any act establishing any right or obligation or giving rise to any contractual or legal Manual of Regulations for Non-Bank Financial Institutions N Regulations Page 31 . No. SEC or IC. 4661N . Students who are beneficiaries of remittances/fund transfers who are not yet of voting age may be allowed to present the original and submit a clear copy of one (1) valid photo-bearing school ID duly signed by the principal or head of the school.31 g. as amended (Appendix N-4). financial transactions may include remittances.delivery period of remittance to beneficiary stated in number of days.§§ 4660N . Delivery time to recipients/ beneficiaries . For this purpose. hours or minutes. among others.4694N (Reserved) Sec. in order to promote access of Filipinos to services offered by formal FIs. b. 4695N Valid Identification (ID) Cards for Financial Transactions. c. Valid IDs include the following: (a) Passport (b) Driver’s license (c) PRC ID (d) NBI clearance (e) Police clearance (f) Postal ID (g) Voter’s ID (h) Barangay certification (i) GSIS e-Card (j) SSS card (k) Senior Citizen card (l) OWWA ID (m) OFW ID (n) Seaman’s Book (o) Alien Certification of Registration/ Immigrant Certificate of Registration (p) Government office and GOCC ID (e. Non-bank remittance service providers shall likewise post said information in their respective websites and display them prominently in conspicuous places within their premises and/or remittance/service centers. Clients who engage in a financial transaction with covered institutions for the first time shall be required to present the original and submit a clear copy of at least one (1) valid photo-bearing ID document issued by an official authority. NBFIs shall require their clients to submit a clear copy of one (1) valid ID on a one-time basis only.g. or at the commencement of a business relationship. as well as to encourage and facilitate remittances of OFWs through the banking system: a.c of the Revised IRRs of R.1. 534 dated 26 June 2006) Secs. 4699N General Provision on Sanctions.31 relationship between the parties thereto. 7653. Manual of Regulations for Non-Bank Financial Institutions .A.4699N 08.12. 564 dated 03 April 2007 as amended by Circular No. 608 dated 20 May 2008) N Regulations Page 32 Secs.§§ 4695N . It also includes any movement of funds by any means with a covered institution. 4696N-4698N (Reserved) Sec. (Circular No. No. Any violation of the preceding provisions shall be subject to Section 36 of R. Manual of Regulations for Non-Bank Financial Institutions LIST OF REPORTS REQUIRED FROM NON-BANK FINANCIAL INSTITUTIONS (Appendix to Sec. Available for Sale Securities and Investment in Bonds and Other Debt Instruments (IBODI) .gov.do - . and a Consolidated Report for Head Office and Branches BSP-7-26-02 Schedule 1 4162N Schedule of Loans/Receivables and Trading Account Securities . N-1 08. Trading Account Securities (TAS) . 4162N) Category A-2 Form No.14.08) BSP-7-26-03B Report Title Consolidated Statement of Condition (CSOC) Frequency Monthly Submission Deadline Submission Procedure 15th banking days after end of the reference month Email to SDC @ sdcnbfi@bsp. 4162N (M-008 dated 02.Appropriate department of the SES Duplicate .Page 1 A-2 .12.Loans and Underwritten Debt Securities Monthly 15th business day from end of reference month Original .Investments.ph Consolidated Statement of Income and Expenses (CSIE) messengerial or postal services Control Prooflist A-2 BSP-7-26-02 Schedule 1 (IHs only) 4162N Schedule of Loans/Receivables.do - .31 N Regulations Appendix N-1 .SDC or cc: mail/electronic transmission Separate report for Head Office and each Branch.do - -do- A-2 BSP-7-26-02 Schedule 3 4162N Interest Rate and Maturities Matching .do - .Loans -do- -do- -do- A-2 BSP-7-26-02 Schedule 2 (FCs only) 4162N Schedule of Trading Account Securities . BSP-7-26-02 MOR Ref.do - APP. do - . No.do - .do - 4162N Data on Firm's Businesses .Appropriate department of the SES Duplicate .12 (Rev. Report Title Manual of Regulations for Non-Bank Financial Institutions A-2 BSP-7-26-02 Schedule 4 4162N Remaining Maturities of Selected Accounts A-2 BSP-7-26-02 Schedule 5 4162N A-2 BSP-7-26-02 Schedule 6 (FCs only) A-2 BSP-7-26-03 A-2 BSP-7-26-23 (Entities w/Trust/ Fund Management Only) A-2 BSP-7-26-24 Frequency Submission Deadline Submission Procedure Monthly 15th business day from end of reference month Original .SDC or cc:mail/electronic transmission Schedule of Bills Payables and Bonds . Aug. 612 dated 06.do - .03) Credit and Equity Exposures to Individuals/ Companies/Groups Aggregating P 1. 2003 per CL dated 08. N-1 08. May 2002 as amended by Cir. such other managed peso funds and TOFA-Others A-2 Unnumbered Report on Suspicious Transactions 4144N.do - .31 N Regulations Appendix N-1 .SDC or cc:mail/electronic transmission As transaction occurs 10th business day from date of transaction/ knowledge To be submitted to the Anti-Money Laundering Council (AMLC) APP.06.Form No.do - Quarterly 15th business day from end of reference quarter Electronic submission/ diskette .08) Weekly 3rd business day following reference week Original .do - .do - .SDC 4162N (Rev.03.0 Million and above Fax to SDC A-2 Unnumbered 4101N (no prescribed form) (Entities with Trust/ Fund Management Only) Report on required and available reserves on Pesodenominated Common Trust Funds (CTFs).12.do - .do - .do - 4162N Statement of Income and Expenses .do - Trust/Fund Management Operations .Page 2 Category . MOR Ref.Appropriate department of the SES Duplicate . Page 3 Control Prooflist . N-1 08.A.ph -do- -do- -do- 15th calendar day from date of signing of contract Appropriate department of the SES Schedules: Balance Sheet A1 to A2 Main Report B to B2 Details of Investments in Debt and Equity Securities C to C2 Details of Loans and Receivables D to D2 Wealth/Assets/Fund Management UITF E Fiduciary Accounts E1 to E1b Other Fiduciary Services . 609 dated 05.26.08 as amended by M-022 dated 06.12.26. Report Title Frequency As transaction occurs 10th business day from date of transaction/knowledge To be submitted to the Anti-Money Laundering Council A-2 Unnumbered 4144N.UITF Income Statement A-2 Unnumbered (no prescribed form) 4172N Audit Engagement Contract As contract is signed 4101N.12 Report on Covered Transactions A-2 Unnumbered 4144N.16 Waiver of the Confidentiality of Information under Sections 2 and 3 of R. 1405.08) Financial Reporting Package for Trust Institutions Quarterly 20th banking day after end of reference quarter SDC [email protected] Certification of compliance with existing anti-money laundering regulations Annually 20th business day after end of reference year To be submitted to the appropriate department of the SES A-2 Unnumbered (Cir. as amended As transaction occurs APP.gov. Submission Deadline Submission Procedure MOR Ref.Manual of Regulations for Non-Bank Financial Institutions Category Form No. No.31 N Regulations Appendix N-1 . 31 N Regulations Appendix N-1 .SEC Duplicate .08) Biographical Data of Directors/Officers .Form No.SEC Central Receiving Section Original .31.If sent by electronic mail .12 Plan of action to comply with Anti-Money Laundering requirements - 30th business day from 31 July 2000 or from opening of the institution Annually 30th day from date of annual stockholders' meeting General Information Sheet Drop Box . N-1 08.07 and CL-059 dated 11.Notarized first page of Biographical Data or Notarized list of names of Directors/Officers whose Biographical Data were submitted thru electronic mail to be faxed to SDC (CL dated 01.01) B Unnumbered 4162N B Unnumbered B Unnumbered B After election or appointment and as changes occur 7th banking day from the date of the meeting of the board of directors in which the directors/officers are elected or appointed Electronic mail or diskette form to SDC or if hard copy original to appropriate department of the SES.09.SDC 4162N Board Resolution on NBFIs signatories of reports submitted to Bangko Sentral As authorized 3rd day from date of resolution To be submitted to the appropriate department of the SES 4144N.Notarized first page of each of the directors'/officers' bio-data saved in diskette and control prooflist . Duplicate to SDC Change of List of Directors/Officers As change occurs Immediately after change Original .BSP APP.Appropriate department of the SES Corporate stockholders should also submit Information Sheet Manual of Regulations for Non-Bank Financial Institutions SES II Form 15 (NP08-TB) 4162N (As amended by M-2008024 dated 07.04.12.Page 4 Category .07) Report on Borrowings of BSP Personnel Quarterly 15 banking days after end of reference quarter Original to SDC B BSP-7-26-01 4162N Information Sheet Annually January 31st Original .Appropriate department of the SES Duplicate . Report Title Frequency Submission Deadline Submission Procedure A-3 Unnumbered 4162N (CL-050 dated 10. MOR Ref.28.If submitted in diskette form . who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex N-2-b. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex N-2-a.1) Category A-2 reports of head offices shall be signed by the president. Category B reports shall be signed by officers or their alternates. executive vice-presidents. N-2 05. Likewise. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-2 .12.31 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION (Appendix to Subsec. vice-presidents or officers holding equivalent positions.APP. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) days from the date of resolution.Page 1 . 4162N. the members of the Board of Directors of (Name of Institution) . we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general. 20__ .12. as the case may be) and.APP. therefore. vice-presidents or officers holding equivalent positions. it is required under Subsec. Whereas. Now. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY N Regulations Appendix N-2 . the members of the Board of Directors.. Whereas. as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No.Page 2 Manual of Regulations for Non-Bank Financial Institutions . are conscious that. we. and that such reports of other offices be signed by the respective managers/officers-in-charge. Whereas. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution’s Board of Directors. Philippines. 4162N. executive vice-presidents. resolve. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. we. (Name of Institution) Done in the City of ___________. in designating the officials who would sign said Category A-2 reports. N-2 05. etc. this Board has full faith and confidence in the institution’s President (and/or the Executive Vice-President. therefore.31 Annex N-2-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS Resolution No.1 that Category A-2 reports of head offices be signed by the president. this _____ day of __________. _____ Whereas. are hereby authorized to sign the Category A-2 reports of _______________________________. therefore. (Name of Institution) Done in the City of __________. 20__ .12. we. _____ Whereas. CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-2 . we the members of the Board of Directors of (Name of Institution)_ are conscious that. Authorized (Alternate) 2.1 that Category B reports be signed by officers or their alternates. are hereby authorized to sign the Category B reports of _______________________________.31 Annex N-2-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY B REPORTS Resolution No. this ____ day of ____________. therefore. this Board has full faith and confidence in the institution’s authorized signatories and. the members of the Board of Directors. resolve. 1. we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general. Whereas. it is required under Subsec. in designating the officials who would sign said Category B reports. assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority. Whereas.Page 3 . 4162N. it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution’s Board of Directors.APP. Whereas. as it is hereby resolved that: Name of Authorized Specimen Position Report Signatory/Alternate Signature Title No. Philippines. N-2 05. Authorized (Alternate) etc. Now. require a system of verifying their legal existence and organizational structure.APP. principal officers and provisions regulating the power behind the entity. 1. the following measures should be taken. quasi-banks. accepting deposit substitutes. and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R. accounts under fictitious names. anonymous accounts. proof of incorporation. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. In case where numbered accounts is allowed (i.31 ANTI-MONEY LAUNDERING REGULATIONS (Appendix to Section 4104N) Banks. entering into trust and other fiduciary transactions. They shall maintain a system of verifying the true identity of their clients and. In case of doubt as to whether their purported clients or customers are acting for themselves or for another. Covered institutions shall phase out within a period of one (1) year from 2 April 2001 or upon their maturity.Page 1 . performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. directors. d. covered institutions should ensure that the client is identified in an official or other identifying documents. trust entities and all other institutions. in case of corporate clients.. legal form. renting of safety deposit boxes. N-3 05. No. Said client identification may be based on official or other reliable documents and records. and all other similar accounts shall be absolutely prohibited. as well as the authority and identification of all persons purporting to act on their behalf.e. whichever is earlier. The provisions of existing laws to the contrary notwithstanding. 9160 and the following rules and regulations on anti-money laundering. including information concerning the customer’s name. address. the records on customer identification. a.A. anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them. With respect to closed accounts. reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by the covered institutions should be renewed/updated at least every other year. Customer identification. Covered institutions shall establish and record the true identity of its clients based on official documents. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts.12. c. when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both. e. In cases of corporate and other legal entities. which are not expressly allowed under existing law. When establishing business relations or conducting transactions (particularly opening of deposit accounts. account files and business Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-3 . b. peso and foreign currency non-checking numbered accounts). evidence for prosecution of criminal behaviour. (a) Wire transfers between accounts. (2) Inward remittances without visible lawful purpose or without underlying trade transactions. 2.03 (Annex N-3-b).3 of the AMLA IRRs. unusual large transactions. Such records must be sufficient to permit reconstruction of individual transactions so as to provide. 292 dated 11. (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities.31 correspondence. (3) Unusual purchases of foreign exchange without visible lawful purpose. the transactions involving such funds or attempts to transact the same. (5) Complex. including the designation of compliance officers at management level. be examined. unusual large transactions.3 of the AMLA IRRs. Programs against money laundering. should include. which have no apparent or visible lawful purpose. as far as possible. Required reporting of certain transactions. and all unusual patterns of transactions. Amended by AMLC Resolution No. or should at least avoid.1 Banks shall report covered transactions and suspicious transactions. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. 1. as defined in Rules 5. procedures and controls. a. N-3 nos. should be reported to the AntiMoney Laundering Council (AMLC) in accordance with Rules 5. N-3 05. The development of internal policies.2 and 5. The background and purpose of such transactions should.20. 1 4. Report on suspicious transactions. the findings established in writing. especially if the wire transfers are effected through countries which are identified or connected with terrorist activities.2 and 5. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose. if necessary. These programs. 9160 and/or its IRRs. shall be preserved and safely stored for at least five (5) years from the dates when they were closed. b. If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R. Covered institutions should not. which have no apparent or visible lawful purpose. Programs against money laundering should be developed. auditors and law enforcement agencies. and all unusual patterns of transactions. 2 and 4 within thirty (30) business days from 31 July 2000 or from opening of the institution. without visible economic or business purpose.12. as a minimum: a. and be available to help supervisors. to the AMLC using the forms prescribed by the AMLC. An audit function to test the system. g. Covered institutions shall submit a plan of action on how to comply with the requirements of App. 3. (4) Unusual sales of foreign exchange whose sources are not satisfactorily established. f.Page 2 Manual of Regulations for Non-Bank Financial Institutions . and (7) Suspicious transaction indicators or “red flags” as a guide in the submission to the AMLC of reports of suspicious transactions relating to potential or actual financing of terrorism. Submission of plans of action. No. An ongoing employee training program.A. and c.APP. and adequate screening procedures to ensure high standards when hiring employees. transacting business with criminals. Special attention should be given to all complex. N Regulations Appendix N-3 . 31 (b) Sources and/or beneficiaries of wire transfers are citizens of countries which are identified or connected with terrorist activities. representative. (c) Repetitive deposits or withdrawals that cannot be explained or do not make sense. identical or analogous to any of the foregoing.Page 3 .A. consultant or associate of the covered institution. (i) Client is under investigation by law enforcement agencies for possible involvement in terrorist activities. No. No. No. shall be criminally liable. the contents thereof. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. the concerned officer. (o) Incongruities between apparent sources and amount of funds raised or moved by the NGO. in any manner or by any means. (d) Amount(s) involved in every transaction. (h) Client was reported and/or mentioned in the news to be involved in terrorist activities. (m) The absence of contributions from donors located within the country of origin of the NGO. employee. R. advisor. (p) Any other transaction that is similar. but has no family members working in the country from which the remittance is made. to any person the fact that a covered transaction report was made. In case of violation thereof. companies or NGOs that are suspected as being used to pay or receive funds from revolutionary taxes. shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith. (g) An individual receiving remittances. (e) Client is conducting a transaction that is out of the ordinary for his known business interest. (f) Deposits being made by individuals who have no known connection or relation with the account holder. When reporting covered transactions to the AMLC. (c) Date or date the transaction(s) occurred. (k) Transactions of individuals.APP. 8791 and other similar laws. but are prohibited from communicating. as amended. (8) All other suspicious transactions/ activities which can be reported without violating any law. whether or not such reporting results in any criminal prosecution under R. or any other information in relation thereto. no administrative. R. 1405. agent. 9160 or any other Philippine law. (n) A mismatch between the pattern and size of financial transactions on the one hand and the stated purpose and activity of the NGO on the other. No. employees. companies or non-governmental organizations (NGOs) that are affiliated or related to people suspected of being connected to a terrorist group or a group that advocates violent overthrow of a government. (b) A brief description of the transaction or transactions. as amended. agents. b. representatives.A. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-3 . Exemption from Bank Secrecy Law.12. N-3 05. (d) Value of the transaction is over and above what the client is capable of earning. 6426. directly or indirectly. advisors. consultants or associates shall not be deemed to have violated R. (e) Such other relevant information which can be of help to the authorities should there be an investigation.A. (j) Transactions of individuals. criminal or civil proceedings. However. covered institutions and their officers.A. (l) The NGO does not appear to have expenses normally related to relief or humanitarian effort. N-3 05. or any other information in relation thereto.APP. The certification shall be submitted in accordance with Appendix N-1 and shall be considered a Category A-2 report. consultant or associate of the covered institution.31 c. or other similar devices. agents.12. to any person. 5. entity. Manual of Regulations for Non-Bank Financial Institutions . Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification (Annex N-3-a) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations. covered institutions and their officers. Neither may such reporting be published or aired in any manner or form by the mass media. consultants or associates are prohibited from communicating. employees. or media shall be held criminally liable.Page 4 agent. employee. advisor. in any manner or by any means. the concerned officer. representatives. the contents thereof. the media. Certification of compliance with anti-money laundering regulations. directly or indirectly. When reporting covered transactions to the AMLC. the fact that a covered transaction report was made. Prohibition from disclosure of the covered transaction report. representative. electronic mail. advisors. N Regulations Appendix N-3 . In case of violation thereof. No.(s) as follows: Name Community Tax Cert. _________. Book No. and continued monitoring of customer’s activities. _______________________________________ (Name of President or officer of equivalent rank) ___________________________ (Name of Compliance Officer) SUBSCRIBED AND SWORN to before me. That the NBFI does not maintain anonymous or fictitious accounts.APP. 3.12. That we conduct regular anti-money laundering training sessions for all NBFI officers and selected staff members holding sensitive positions. No. That the NBFI is complying with the required customer identification. Page No. 9160 (AntiMoney Laundering Act of 2001) as well as with BSP Circular Nos. affiant/s exhibiting to me their Community Tax Certificate No.A. _____ this ___ day of ___________. N-3 05. we hereby certify: 1.31 Annex N-3-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No.Page 5 . documentation of all new clients. 2. That we have monitored (Name of NBFI)’s compliance with R. 279 dated 2 April 2001. 251. _________. 253. No Date/Place Issued Doc. 259 and 302. and 5. Series of 20___ Notary Public Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-3 . _________. 4. That the NBFI is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years. whether in domestic or foreign currency.Page 6 transactions do not distinguish clients and their respective transaction amounts. deposits of premium payments in bulk or settlements of trade. Submission of STRs. Banks shall file covered transaction reports (CTRs) on transactions involving all kinds of monetary instruments or property. regardless of the mode of payment.12. required to file STRs when the transactions that pass through them are deemed to be suspicious. quarterly. said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500. SCCP and transfer agents are exempt from filing CTRs..00 and are included in the bulk transactions.000. only the brokers-dealers shall be required to file CTRs and STRs. regardless of the mode of payment (monthly. whichever comes first. Covered institutions. shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. 5. i. Where the covered institution engages in bulk transactions with a bank. semi-annually or annually)..APP. such amount shall be reported as a covered transaction. N-3 05. 6. when the total amount of the premiums for the entire year. other than banks. in cash or non-cash. are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require. Due to the nature of the transactions in the stock exchange. even if the amounts of the amortizations are less than the threshold amount. and the bulk N Regulations Appendix N-3 . The CTR shall be filed upon payment of the first premium amount. Manual of Regulations for Non-Banks Financial Institutions . All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property.31 Annex N-3-b AMLC Resolution No. Under this rule.00. the insurance company shall file the CTR only once every year until the policy matures or rescinded. exceeds P500. 2. 4. 3. PCD.000. They. The submission of CTRs is deferred until the AMLC directs otherwise. i. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS 1.e. The PSE.e. however. are however. With respect to insurance companies. any insurance contract. the following terms are hereby defined as follows: Rule 3.A.A. doing any kind of business specifically recognized as constituting the doing of an insurance business within the Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank. holding companies. .2.b. (a) An insurance company includes those entities authorized to transact insurance business in the Philippines. reinsurance brokers. Definitions. insurance brokers. 9160”.a. domestically incorporated or branch of a foreign entity.These Rules shall be known and cited as the “Revised Rules and Regulations Implementing R. professional reinsurers. holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC).A. damage or liability arising from an unknown or contingent event. NO. non-stock savings and loan associations. N-4 05.a. NO. Purpose. Banks. including their subsidiaries and affiliates supervised and/ or regulated by the Bangko Sentral ng Pilipinas (BSP). quasi-bank. Transacting insurance business includes making or proposing to make. as amended by R.These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA. as amended by R. RULE 3 DEFINITIONS Rule 3.A. offshore banking units. Rule 1.A.a. 9194. Title. No. 9194.a. and whether domestic.31 REVISED IMPLEMENTING RULES AND REGULATIONS R. quasi-banks. as insurer. Insurance companies. trust entity. and all other institutions. Declaration of Policy.APP. any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety. quasi-bank. trust entity or any other institution supervised or regulated by the BSP. 9160. (the Anti-Money Laundering Act of 2001 [AMLA]). . A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss. No. trust entities. . insurance agents. Covered Institution refers to: Rule 3. RULE 2 DECLARATION OF POLICY Rule 2.Page 1 .It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity.12. AS AMENDED BY R. Consistent with its foreign policy. pawnshops. the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed.1. or as surety. – For purposes of this Act. Rule 3. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank. 9194 (Appendix to Sec. or any other institution supervised and/or regulated by the BSP. 4104N) RULE 1 TITLE Rule 1. No. whether life or non-life. as amended. association or corporation that transacts solely and exclusively reinsurance business in the Philippines. but does not include a salesman.3. associated persons of brokers or dealers. remittance. salesmen. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. close-end investment companies. N-4 05. (ii) mutual funds or open-end investment companies. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority. investment agents and consultants. (iii) foreign exchange corporations. No. in the underwriting of securities of another person or enterprise.D. and (iv) other entities administering or otherwise dealing in currency. for any insurance company authorized to do business in the Philippines. issuer or broker to buy and sell securities. acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance. 612. including securities of the Government and its instrumentalities. on behalf of an insured other than himself. by a dealer. (c) A securities salesman includes a natural person. common trust funds. as amended. negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance. including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P. and other entities managing securities or rendering similar services. 612. or an agent or a person whose functions are solely clerical or ministerial. (e) A reinsurance broker includes any person who.) No. A holding company system includes a holding company together with its controlled insurers and controlled persons. commodities or financial derivatives based thereon. (e) An investment house includes an enterprise which engages or purports to engage. pre-need companies or issuers and other similar entities. N Regulations Appendix N-4 . money payment. employed as such or as an agent. valuable objects. cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). (c) An insurance broker includes any person who acts or aids in any manner in soliciting. brokers. trading advisors. money changers. Manual of Regulations for Non-Bank Financial Institutions . employee or officer of an insurer in which any reinsurance is effected.D. investment houses.12.APP. domestically incorporated or a branch of a foreign entity. (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (d) A professional reinsurer includes any person. whether regularly or on an isolated basis.31 meaning of Presidential Decree (P. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. partnership.a. and transfer companies and other similar entities. whether domestic. (i) Securities dealers. not being a duly authorized agent. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance.Page 2 Rule 3. news. (e) such other person not within the intent of this definition. holding or management of such funds and/or properties for the use. or a grantor of a trust. in the sale and purchase of foreign currency notes and such other foreign-currency denominated nonbank deposit transactions as may be authorized under its articles of incorporation. internment and other plans. or otherwise transacts business. A customer also includes the beneficiary of a trust. except: (a) any bank or trust company.12. as to the value of any security and as to the advisability of trading in any security. teacher. (n) “Customer” refers to any person or entity that keeps an account. reports. education. (m) A money payment. N-4 05. whether regularly or on an isolated basis. columnist. either directly or through circulars. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. as well as the beneficiary of said transactions. sales or exchanges of securities. a pension fund or a company or person whose assets are managed by an asset manager. payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life. provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. (c) the publisher of any bonafide newspaper. from time to time. lawyer. (b) any journalist. editor. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . which the Commission may. any redeemable security of which it is the issuer. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan. for the purpose of administration. (d) any contract market. (k) Investment Advisor/Agent/ Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others. or (2) who for compensation and as part of a regular business. approve. remittance and transfer company includes any person offering to pay. whether actual or prospective. with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted. reporter.Page 3 .31 (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage. pension. analyzes reports concerning the capital market. publications or writings. (g) A closed-end investment company includes an investment company other than open-end investment company. business or financial publication of general and regular circulation. an investment fund. including the arrangement of purchases. benefit or advantage of the trustor or of others known as beneficiaries. exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee. It includes any insurance policy holder. (3) any person who undertakes the management of portfolio securities of investment companies. remit or transfer or transmit money on behalf of any person to another person. (i) A pre-need company or issuer includes any corporation supervised and/ or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans.APP. including their employees. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need. accountant. issues or promulgates. accounts.000. regardless of amount. N-4 05. and (5) Other similar instruments where title thereto passes to another by endorsement. and maintenance of any unlawful activity. or any interest therein or any benefit. devices. Person refers to any natural or juridical person. checks and notes. the SEC or the IC. papers or things used in or having any relation to any unlawful activity. privilege. purpose or economic justification.d. (2) Drafts. SEC or IC supervision applies only to the registration of the covered institution. commercial papers. deposit N Regulations Appendix N-4 . costs. documents. Rule 3. Rule 3. real or personal. where any of the following circumstances exist: (1) There is no underlying legal or trade obligation. Monetary Instrument refers to: (1) Coins or currency of legal tender of the Philippines. (4) Contracts or policies of insurance. Offender refers to any person who commits a money laundering offense. outlays. analogous or identical to any of the foregoing. refunds and other similar items for the financing.APP. (2) The client is not properly identified. is being or has been committed. operations. (3) The amount involved is not commensurate with the business or financial capacity of the client. trust certificates. Rule 3.c. Proceeds refers to an amount derived or realized from an unlawful activity.f. financial or economic means. and contracts of suretyship. tangible or intangible. effects and any amount realized from any unlawful activity.e. or (7) Any transaction that is similar. (6) The transaction is in any way related to an unlawful activity or any money laundering activity or offense under this act that is about to be. claim or right with respect thereto. assignment or delivery. shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules.b. Rule 3. Where the BSP. trading orders. It includes: (1) All material results. Suspicious transactions are transactions. life or non-life. (2) All monetary. and (3) All moneys. it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the act. (3) Securities or negotiable instruments. bonds. Manual of Regulations for Non-Bank Financial Institutions . transaction tickets and confirmations of sale or investments and money market instruments.1. within the limits of the AMLA. Rule 3. the BSP. Supervising Authority refers to the BSP. profits.00 within one (1) banking day.g.Page 4 certificates. payments. charges. custodial receipts or deposit substitute instruments. Covered Transaction is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of PhP500. or of any other country. Rule 3. disbursements.12. (5) Any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution.b. Rule 3.31 (o) “Property” includes any thing or item of value. expenditures. (4) Taking into account all known circumstances. the SEC and the IC. e. in consideration for the help given or to be given. (3) Sale of prohibited drugs. It also includes any movement of funds by any means with a covered institution.A. advantage or preference in the discharge of his official. (15) Directly or indirectly requesting or receiving any gift. 3815. (14)Directly or indirectly requesting or receiving any gift. misuse or malversation of Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . No. even if he votes against the same or he does not participate in the action of the board. g. (10)Possession of prohibited drugs. conversion. from any person for whom the public officer. No. (11)Use of prohibited drugs.12. has secured or obtained. (B) Sections 4. whether or not the public officer profited or will profit thereby. percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party. 5. any government permit or license. (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity.A. (4) Administration of prohibited drugs. into any contract or transaction manifestly and grossly disadvantageous to the same. 15 and 16 of R.APP. (17) Entering. (D) Plunder under R. h and i of R. 13. and (13)Culture of plants which are sources of prohibited drugs. panel or group. 14. present. in any manner or capacity. on behalf of the government. 6. wherein the public officer in his official capacity has to intervene under the law. (19) Directly or indirectly becoming interested. 3019. otherwise known as the Anti-Graft and Corrupt Practices Act. Rule 3. No. 3019. 10. (20) Plunder through misappropriation. (12)Cultivation of plants which are sources of prohibited drugs.A. Dive or Resort for prohibited users. (9) Manufacture of prohibited drugs. as amended. (5) Delivery of prohibited drugs. (2) Importation of prohibited drugs. 9. as amended. 7080.h. present or other pecuniary or material benefit. (6) Distribution of prohibited drugs. (1) Kidnapping for ransom. administrative or judicial functions through manifest partiality. 8. without prejudice to Section 13 of R. share. for personal gain. as amended. and which exercise of discretion in such approval. to the following: (A) Kidnapping for ransom under Article 267 of Act No. including the government.31 Rule 3.A. (7) Transportation of prohibited drugs. committee. (16) Causing any undue injury to any party. panel or group of which he is a member. 12. N-4 05. (8) Maintenance of a Den. or in which he is prohibited by the Constitution or by any law from having any interest. evident bad faith or gross inexcusable negligence.Page 5 . otherwise known as the Comprehensive Dangerous Drugs Act of 2002. for himself or for another.i. or having material interest in any transaction or act requiring the approval of a board. 9165. Unlawful activity refers to any act or omission or series or combination thereof involving or having relation. or will secure or obtain. (C) Section 3 paragraphs b. No. or giving any private party any unwarranted benefits. c. otherwise known as the Revised Penal Code. Transaction refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. (27) Robbery with physical injuries.D. kickbacks or any other form of pecuniary benefit from any person and/ or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned. property. credit. any shares of stock.APP. even though such obligation be totally or partially guaranteed by a bond. connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the Republic of the Philippines. 1602. No. or other property. or by denying having received such money. (24) Plunder by establishing agricultural. or with use of firearms on a street. share. percentage. (E) Robbery and extortion under Articles 294. influence. or under any other obligation involving the duty to make delivery or to return the same. gift. Manual of Regulations for Non-Bank Financial Institutions . as amended. 295. No. (30) Masiao. or for administration. goods or any other personal property received by the offender in trust or on commission. to the prejudice of another. (I) Swindling under Article 315 of the Revised Penal Code. (H) Qualified theft under Article 310 of the Revised Penal Code. (21) Plunder by receiving. (26) Robbery with violence or intimidation of persons. directly or indirectly. as amended. quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so. even though such obligation be based on an immoral or illegal consideration. N-4 05. directly or indirectly. to the prejudice of the offended party or any third person. as amended. or falsely pretending to possess power. receiving or accepting. (32) Piracy in inland Philippine waters. as amended and P. any commission. (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank. (31) Piracy on the high seas. instrumentalities or government-owned or-controlled corporations or their subsidiaries. 532.D. industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests. N Regulations Appendix N-4 . 296. and by writing any document above such signature in blank. money. relationship. (29) Jueteng. 300. committed in an uninhabited place and by a band. (28) Robbery in an uninhabited house or public building or edifice devoted to worship. (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting. 301 and 302 of the Revised Penal Code. 299. authority. (38) Estafa by using a fictitious name. (23) Plunder by obtaining. road or alley. agencies. goods. (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions. (33) Aiding and abetting pirates and brigands.31 public funds or raids upon the public treasury. (G) Piracy on the high seas under the Revised Penal Code.Page 6 (F) Jueteng and Masiao punished as illegal gambling under P. equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking. qualifications. (25) Plunder by taking undue advantage of official position. (34) Qualified theft. (35) Estafa with unfaithfulness or abuse of confidence by altering the substance.12. 12. or issuing a check in payment of an obligation when the offender has no funds in the bank. Hacking or cracking. (45) Fraudulent importation of any vehicle. K. including (57) the introduction of computer viruses and the like. alteration. through the use of telecommunication networks. (K) Violations under R. (47) Assisting in any fraudulent importation. electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works. alteration. document or any other papers. making available to the public.3. in a manner that infringes intellectual property rights. No.31 agency. (59) the unauthorized dissemination. concealing or destroying. (49) Receiving smuggled article after fraudulent importation. (44) Estafa by removing. (41) Estafa by postdating a check. (J) Smuggling under R. but not limited to. (46) Fraudulent exportation of any vehicle.Page 7 .APP. such as. K. N-4 05. (52) Selling smuggled article after fraudulent importation. (62) the unauthorized storage. which refers to: (58) the unauthorized copying. by means of deceit. (50) Concealing smuggled article after fraudulent importation. (48) Assisting in any fraudulent exportation. downloading. substitution. Piracy. removal.2. (61) the unauthorized use. of protected material. (40) Estafa by pretending to have bribed any government employee. or by means of other similar deceits. K. (60) the unauthorized importation. which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system. distribution. steal. Nos. (42) Estafa by inducing another. 8792.A. business or imaginary transactions. theft or loss of electronic data messages or electronic document. resulting in the corruption. No. in whole or in part. alter. (53) Transportation of smuggled article after fraudulent importation. or his funds deposited therein were not sufficient to cover the amount of the check. without the knowledge and consent of the owner of the computer or information and communications system. uploading. destruction.1. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . modification. Violations of the Consumer Act or R. (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game. the internet. otherwise known as the Electronic Commerce Act of 2000. or (56) any access in order to corrupt. reproduction.A. office files.A. or destroy using a computer or other similar information and communication devices. to sign any document. fineness or weight of anything pertaining to his art or business. (39) Estafa by altering the quality. (54) Fraudulent practices against customs revenue. (51) Buying smuggled article after fraudulent importation. 455 and 1937. or (63) the unauthorized broadcasting. any court record. communication. of the same issuer or of a controlling. label or other identification device. as defined under the Revised Penal Code. Manual of Regulations for Non-Bank Financial Institutions . (89) Sale. (76) Deceptive sales acts and practices. (78) Fraudulent practices relative to weights and measures. whether of the same or different class. (94) Manipulation of security prices by effecting. whether of the same or different class. controlled or commonly controlled company by others. (84) Other violations of the provisions of the E-Commerce Act. controlled or commonly controlled company by others. 6235. (80) Violation of price tag requirements. (L) Hijacking and other violations under R. (70) Alteration or removal of the labeling of any drug or device held for sale. stamp. (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act.APP. (69) Revealing trade secrets. alone or with others. (87) Murder. (82) False. (85) Hijacking. (81) Mislabeling consumer products. otherwise known as the Securities Regulation Code of 2000. destructive arson N Regulations Appendix N-4 . (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe. (M) Fraudulent practices and other violations under R. (67) Adulteration or misbranding of any consumer product. counterfeiting or simulating any mark. (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market. (65) Sale of any product that has been banned by a rule under the Consumer Act. including those perpetrated by terrorists against noncombatant persons and similar targets. tag. (74) Introduction into commerce of any mislabeled or banned hazardous substance.A.A. a series of transactions in securities that raises their prices to induce the purchase of a security. (73) Sale of any drug or device beyond its expiration date. alone or with others. destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets. 8799.12. (77) Unfair or unconscionable sales acts and practices. (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act. (79) False representations in advertisements as the existence of a warranty or guarantee. No. (88) Hijacking. of the same issuer or of a controlling. (86) Destructive arson. N-4 05. (75) Alteration or removal of the labeling of a hazardous substance. (83) Violation of required disclosures on consumer loans. offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC. (68) Forging. (91) Violation of reportorial requirements imposed upon issuers of securities. deceptive or misleading advertisements. (93) Manipulation of security prices by effecting. as amended.Page 8 and murder. a series of transactions in securities that depresses their price to induce the sale of a security.31 (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act. No. (66) Sale of any adulterated or mislabeled product using electronic documents. boiler room operations and such other similar devices. squeezing the float. in the light of the circumstances under which they were made. (99) Sale or purchase of any security using any manipulative deceptive device or contrivance. brokers and dealers. practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person. (101) Employment of any device. alone or with others. (107) Effecting any transaction in any security. or reporting such transaction. obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC. which he knew or had reasonable ground to believe was so false and misleading. (110) Violations on the restrictions on borrowings by members. (104) Insider trading. alone or with others. any series of transactions for the purchase and/ or sale of any security traded in an Exchange for the purpose of pegging.31 (95) Manipulation of security prices by effecting. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC.APP. scheme or artifice to defraud in connection with the purchase and sale of any securities. (111) Aiding and Abetting in any violations of the Securities Regulation Code. painting the tape. N-4 05. (112) Hindering. (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security. (97) Manipulation of security prices by making false or misleading statements with respect to any material fact. for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange.Page 9 . (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer. (98) Manipulation of security prices by effecting. or an associated person of any broker or dealer without any registration from the Commission. (108) Making use of the facility of a clearing agency which is not registered with the SEC. hype and dump. not misleading. not registered with the SEC. a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close. (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman. transaction. fixing or stabilizing the price of such security. or acting as a salesman. (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made.12. in an Exchange or using the facility of an Exchange which is not registered with the SEC. (103) Engaging in any act. (109) Violations of margin requirements. (100) Execution of short sales or stoploss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors. Accordingly. the reports required under Rule 9.The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. RULE 5 JURISDICTION OF MONEY LAUNDERING CASES AND MONEY LAUNDERING INVESTIGATION PROCEDURES (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries.APP. involving or relating to the proceeds of any unlawful activity. Investigation of Money Laundering Offenses. thereby making them appear to have originated from legitimate sources. (c) Money laundering activities. N-4 05. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity. .i. is “of a similar nature”. Money Laundering Offense.Page 10 Rule 5. transacts or attempts to transact said monetary instrument or property. and (d) Other violations of this act.1.31 (113) Violations of any of the provisions of the implementing rules and regulations of the SEC. Attempts at Transactions. Jurisdiction of Money Laundering Cases. the proceeds of any unlawful activity.1.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing. N Regulations Appendix N-4 . as to constitute the same as an unlawful activity under the AMLA. (114) Any other violations of any of the provisions of the Securities Regulation Code. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan.3. . involves.2. RULE 6 PROSECUTION OF MONEY LAUNDERING Rule 6. Rule 5. Rule 5. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents. (b) Covered transactions deemed suspicious after an investigation conducted by the AMLC.The AMLC shall investigate: (a) Suspicious transactions.12. Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing. Money laundering is a crime whereby the proceeds of an unlawful activity as herein defined are transacted. involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. RULE 4 MONEY LAUNDERING OFFENSE Rule 4. fails to do so. the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3. In determining whether or not a felony or offense punishable under the penal laws of other countries. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC). or relates to.1. performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. Prosecution of Money Laundering (a) Any person may be charged with and convicted of both the offense of money Manual of Regulations for Non-Bank Financial Institutions . The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity.The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. . Knowledge of the offender that any monetary instrument or property represents.31 laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 .7. the Chairman of the SEC or the Insurance Commissioner. Rule 6. and the latter should find probable cause of a money laundering offense. including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. Composition. however. the rules of court and other pertinent laws and rules. in the case of the incapacity. Rule 7. . it shall cause a complaint to be filed. Rule 6. the officer duly designated or authorized to discharge the functions of the Governor of the BSP. Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan. Rule 6. which shall then conduct the preliminary investigation of the case. as the case may be.3. the Commissioner of the Insurance Commission and the Chairman of the SEC as members.1. However. When the AMLC finds.2. shall act in his stead in the AMLC. after investigation. as the case may be. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the application Ex-Parte by the AMLC to the Court of Appeals for a Freeze Order with respect to the monetary instrument or property involved therein and resort to other remedies provided under the AMLA.a. as the case may be.6.1.The functions of the AMLC are defined hereunder: (1) to require and receive covered or suspicious transaction reports from covered institutions.5. it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. absence or disability of any member to discharge his functions. No element of the unlawful activity. Rule 6. involves.APP. before the Department of Justice or the Ombudsman. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt. Unanimous Decision. Rule 6. Functions.b. or the Ombudsman. pursuant to Section 7 (4) of the AMLA.4. including the element of knowledge that the monetary instrument or property represents.The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the BSP as Chairman. N-4 05. Rule 7.Page 11 . that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA.2. may be established by direct evidence or inferred from the attendant circumstances. . Rule 6. or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC. involves or relates to the proceeds of any unlawful activity. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice. RULE 7 CREATION OF ANTI-MONEY LAUNDERING COUNCIL (AMLC) Rule 7.12. The AMLC may require the intelligence units of the Armed Forces of the Philippines. However. resolutions and other directives of the United Nations (UN). For this purpose. to be. as well as their attached agencies. Manual of Regulations for Non-Bank Financial Institutions .APP. or related to. or the execution thereof is likely to prejudice the national interest of the Philippines. facilitate the resolute prevention. including government-owned and-controlled corporations. facilities and resources for the more resolute prevention. (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General.Page 12 (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. the proceeds of an unlawful activity. office. Subject to such limitations as provided for by law. (10) to enlist the assistance of any branch. the methods and techniques used in money laundering. wherever located. (9) to develop educational programs on the pernicious effects of money laundering. money laundering activities and other violations of this Act. (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses. department. track and analyze money laundering transactions for the resolute prevention. detection and investigation of money laundering offenses and prosecution of offenders. the UN Security Council. in any manner or by any means. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. or believed by the Council. the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store. agency or instrumentality of the government.12. Ex-Parte. (5) to investigate suspicious transactions and covered transactions deemed suspicious after an investigation by the AMLC. the Department of Justice. (6) to apply before the Court of Appeals. resolution or directive where the action sought therein contravenes the provisions of the Constitution. in respect of conventions. in any way. on the basis of substantial evidence. bureau. and other international organizations of which the Philippines is a member. which may include the use of its personnel. N-4 05. the Philippine National Police.31 (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered or suspicious transaction report. implied. or request for assistance from a foreign State. directly or indirectly. (7) to implement such measures as may be inherent. incidental and justified under the AMLA to counteract money laundering. N Regulations Appendix N-4 . the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database. and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may. in undertaking any and all antimoney laundering operations. the Department of Finance. convention. in whole or in part. detection and investigation of money laundering offenses. the AMLC may refuse to comply with any such request. involving. for the freezing of any monetary instrument or property alleged to be proceeds of any unlawful activity as defined under Section 3(i) hereof. necessary. representing. (11) To impose administrative sanctions for the violation of laws. RULE 8 CREATION OF A SECRETARIAT Rule 8. Detailed personnel shall continue to receive their salaries.1. agency or instrumentality of the government. Rule 8. This prohibition shall apply even after their separation from the AMLA. department.In organizing the Secretariat.Page 13 . and all the members of the Secretariat. as well as prohibitions. or any other branch. N-4 05. . and shall be entitled to such benefits and subject to such rules and regulations. rules. RULE 9 PREVENTION OF MONEY LAUNDERING. Meetings.The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP. continuously or cumulatively. .2. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC. Customer Identification Requirements Rule 9.a. the SEC or the IC.3. the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. . at least thirty-five (35) years of age. require a system of Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . bureau. unquestionable integrity and known probity. He shall be considered a regular employee of the BSP with the rank of Assistant Governor. the salaries.1.The members of the AMLC. the Executive Director. subject to existing laws and Civil Service Rules and Regulations. in undertaking any and all antimoney laundering operations. emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. benefits and emoluments from their respective mother units.3.31 investigation and prosecution of money laundering offenses and other violations of the AMLA.The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. for at least five (5) years in the BSP. the SEC or the IC and of good moral character. . including government-owned and controlled corporations. the AMLC may choose from those who have served. Confidentiality Provisions. the SEC or the IC. on detail or on secondment. Covered institutions shall establish and record the true identity of its clients based on official documents. regulations and orders and resolutions issued pursuant thereto. whether permanent. in case of corporate clients. He must be a member of the Philippine Bar. They shall maintain a system of verifying the true identity of their clients and.The AMLC shall meet every first Monday of the month. Rule 7. .1. as are applicable to officers of similar rank. any information known to them by reason of their office. Detail and Secondment. Composition.APP. In case of violation of this provision. shall not reveal. Rule 8. must have served at least five (5) years either at the BSP.4. in any manner. in lieu of their respective compensation packages from their respective mother units. CUSTOMER IDENTIFICATION REQUIREMENTS AND RECORD KEEPING Rule 9. office. The Executive Director.12. Customer Identification. Seconded personnel shall receive. Rule 8. or as often as may be necessary at the call of the Chairman. (6) Contact numbers. closed. being legal entities which have no business substance in their own right but through which financial transactions may be conducted. covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being. (4) List of directors/partners.1. Examples of such documents are identity cards and passports.When dealing with customers who are acting as trustee. agents and other persons and the nature of their capacity and duties. (6) Nature of work and name of employer or nature of self-employment/ business.Before establishing business relationships. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws. (3) Permanent address. including shell companies and corporations: (1) Articles of Incorporation/ Partnership. Rule 9. and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. phased out. Rule 9. N-4 05. if any. . (2) By-laws. (9) Specimen signature. (7) Contact numbers. wound up or voided. Covered institutions shall also establish and record the true and full identity of such trustees.c. bearing a photograph of the customer. Nominee and Agent Accounts.APP. or terminated. nominees. . dissolved. N Regulations Appendix N-4 . should be undertaken with extreme caution.b. The following minimum information/ documents shall be obtained from customers that are corporate or juridical entities. (5) List of principal stockholders owning at least two percent (2%) of the capital stock. and (11) Names of beneficiaries in case of insurance contracts and whenever applicable.12. or that its business or operations has not been or is not in the process of being. agent or in any capacity for and on behalf of another. . (3) Official address or principal business address. Minimum Information/ Documents Required for Corporate and Juridical Entities. shut down.d.Covered institutions shall require customers to produce original documents of identity issued by an official authority. (4) Date and place of birth. Rule 9. it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties. (8) Tax identification number. Minimum Information/ Documents Required for Individual Customers. Social Security System number or Government Service and Insurance System number. covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted.31 verifying their legal existence and organizational structure. nominee. Dealings with shell companies and corporations. (2) Present address. The following minimum information/documents shall be obtained from individual customers: (1) Name.1.1. (7) Beneficial owners. (5) Nationality. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. as well as the authority and identification of all persons purporting to act on their behalf.Page 14 Manual of Regulations for Non-Bank Financial Institutions . (10) Source of fund(s). Trustee. No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9.2. – Records shall be retained as originals in such forms as are admissible in court pursuant to Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . N-4 05. – All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. Rule 9.c of these Rules.With respect to closed accounts.2. Rule 9. account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed. accounts under fictitious names.b. Record Keeping: Kinds of Records and Period for Retention. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. Covered institutions shall prepare and maintain documentation. whichever is later. .All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from 17 October 2001 or from the dates of the accounts or transactions. relationship or transaction can be so reconstructed as to enable the AMLC. Prohibition Against Certain Accounts.1. – If a money laundering case based on any record kept by the covered institution concerned has been filed in court.1. Form of Records. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. Rule 9. relationships and transactions such that any account.a. Prohibition Against Opening of Accounts Without Face-to-face Contact. the records on customer identification. Rule 9. in accordance with the aforementioned client identification requirements. Rule 9.2.e.1. That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records. until it is confirmed that the case has been finally resolved or terminated by the court. . No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. Rule 9. said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules. on their customer accounts. . Existing and New Accounts and New Transactions.f.2.Page 15 . Retention of Records in Case a Money Laundering Case has been Filed in Court. .12. Record Keeping Requirements Rule 9. Rule 9.g.c. anonymous accounts. as the case may be. Closed Accounts. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. and/or the courts to establish an audit trail for money laundering. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts.2. Numbered Accounts.1. and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution.2. Covered institutions shall maintain accounts only in the true and full name of the account owner or holder.d. The provisions of existing laws to the contrary notwithstanding.Peso and foreign currency non-checking numbered accounts shall be allowed: Provided. and all other similar accounts shall be absolutely prohibited.APP.31 Rule 9.e. all covered transactions during said deferment period shall be submitted thereafter. consultant or associate of the covered institution. R.b. 1405. to any person the fact that a covered or suspicious transaction report was made. or any other information in relation thereto. advisors. or as may be determined by the AMLC. in any manner or by any means. entity. in order to allow the covered institutions to configure their respective computer systems.31 existing laws and the applicable rules promulgated by the Supreme Court. employees. to any person. the concerned officer.b. electronic mail. Rule 9. Rule 9. employee. Rule 9. Rule 9. agents. or other similar devices. . – When reporting covered or suspicious transactions to the AMLC. The reporting of covered transactions by covered institutions shall be deferred for a period of sixty (60) days after the effectivity of R. the concerned officer and employee of the covered institution. Manual of Regulations for Non-Bank Financial Institutions . In case of violation hereof. with the corresponding hard copy for suspicious transactions. the fact that a covered transaction report was made. Covered Transaction Reports and Suspicious Transaction Reports shall be submitted in a secured manner to the AMLC in electronic form. or the media. Confidentiality Provisions. The final flow and procedures for such reporting shall be mapped out in the manual of operations to be issued by the AMLC.3. or media shall be held criminally liable.a. No. advisor. or through internet facilities. No. N Regulations Appendix N-4 .3. consultants or associates are prohibited from communicating.3.3. representatives.The Covered Transaction Report (CTR) and the Suspicious Transaction Report (STR) shall be in the forms prescribed by the AMLC. Rule 9. leased lines. Neither may such reporting be published or aired in any manner or form by the mass media. or any other information in relation thereto.3. 8791 and other similar laws. Covered institutions shall use the existing forms for Covered Transaction Reports and Suspicious Transaction Reports. in any manner or by any means. covered institutions and their officers and employees.12. representative. Rule 9. Period of Reporting Covered Transactions and SuspiciousTransactions. until such time as the AMLC has issued new sets of forms. No. In case of violation thereof.b. the contents thereof. Exemption from Bank Secrecy Laws.3. shall be criminally liable. as amended. the covered institution shall report the same as a suspicious transaction. as amended.Covered institutions shall report to the AMLC all covered transactions and suspicious transactions within five (5) working days from occurrence thereof. R. but are prohibited from communicating. shall not be deemed to have violated R. N-4 05. Reporting Transactions. 9194.A.APP. directly or indirectly. 6426. .1. unless the supervising authority concerned prescribes a longer period not exceeding ten (10) working days. Should a transaction be determined to be both a covered and a suspicious transaction. provided that.A.A.d. - of Covered Rule 9. – When reporting covered transactions or suspicious transactions to the AMLC.2.c.Page 16 either via diskettes. No. agent. directly or indirectly.A. Covered and Suspicious Transaction Report Forms.3. the contents thereof. covered institutions and their officers. b. Safe Harbor Provisions.3.2. 3. Rule 10. Within twenty-four (24) hours from receipt of the freeze order. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 .Probable cause includes such facts and circumstances which would lead a reasonably discreet.a. Definition of Probable Cause . The name(s) of the account owner(s) or holder(s). The covered institution shall likewise immediately furnish a copy of the notice of the freeze order upon the owner or holder of the monetary instrument or property or related web of accounts subject thereof.e. shall lie against any person for having made a covered transaction report or a suspicious transaction report in the regular performance of his duties and in good faith.3. the covered institution concerned shall submit to the Court of Appeals and the AMLC. is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. The account number(s). 2. – No administrative.3.31 Rule 9. (a) After an investigation conducted by the AMLC and upon determination that probable cause exists that a monetary instrument or property is in any way related to any unlawful activity as defined under Section 3 (i). the covered institution concerned shall immediately freeze the monetary instrument or property and related web of accounts subject thereof. a detailed written return on the freeze order.c. specifying all the pertinent and relevant information which shall include the following: 1. (c) The freeze order shall be effective for twenty (20) days unless extended by the Court of Appeals upon application by the AMLC. the AMLC may apply to the Court of Appeals for the freezing. Rule 10. the AMLC may file an Ex-Parte application before the Court of Appeals for the issuance of a freeze order on any monetary instrument or property subject thereof prior to the institution or in the course of. by personal delivery. the criminal proceedings involving the unlawful activity to which said monetary instrument or property is any way related. property or related web of accounts as of the time they were frozen.3. The amount of the monetary instrument.12. When the AMLC May Apply for the Freezing of Any Monetary Instrument or Property.APP. whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. their branches and/or other units. Rule 10.3.Page 17 .1. Rule 10. and monetary instruments or properties named in the application of the AMLC but also all other related web of accounts pertaining to other monetary instruments and properties. (b) Considering the intricate and diverse web of related and interlocking accounts pertaining to the monetary instrument(s) or property(ies) that any person may create in the different covered institutions. Duty of Covered Institution Upon Receipt Thereof. criminal or civil proceedings. not only of the monetary instruments or properties in the names of the reported owner(s)/holder(s). – Rule 10. Upon receipt of the notice of the freeze order. N-4 05. prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be. the funds and sources of which originated from or are related to the monetary instrument(s) or property(ies) subject of the freeze order(s). RULE 10 APPLICATION FOR FREEZE ORDERS Rule 10. 1. as amended. otherwise known as the Comprehensive Dangerous Drugs Act of 2002.5. Authority to Inquire into Bank Deposits Without Court Order. 14. . when it has been established that there is probable cause that the deposits or investments involved are related to an unlawful activity as defined in Section 3 (i) hereof or a money laundering offense under Section 4 hereof.APP. Upon the timely filing of such application and pending the decision of the Court of Appeals to extend the period. (c) Hijacking and other violations under R. the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates upon order of any competent court in cases of violation of this Act. However. 3815. Authority to Inquire into Bank Deposits with Court Order.6. 5. No. except in cases as provided under Rule 11.6. as amended. No. R. Upon receipt of the freeze order issued by the court of appeals and upon verification by the covered institution that the related web of accounts originated from and/or are materially linked to the monetary instrument or property subject of the freeze order. N-4 05. 6426.12. and other laws. Rule 11. No.A. 15 and 16 of R. destructive arson and murder. The return of the covered institution as required under rule 10. N Regulations Appendix N-4 .A. Prohibition Against Issuance of Freeze Orders Against Candidates for an Electoral Office During Election Period. the covered institution shall not lift the effects of the freeze order without securing official confirmation from the AMLC. 8791.3.c shall include the fact of such freezing and an explanation as to the grounds for the identification of the related web of accounts.4. Related Web of Accounts pertaining to the money instrument or property subject of the freeze order is defined as those accounts. RULE 11 AUTHORITY TO INQUIRE INTO BANK DEPOSITS Rule 11.A. the covered institution shall freeze these related web of accounts wherever these funds may be found. 8. (b) Sections 4. 9. 12. Extension of the Freeze Order. Notwithstanding the provisions of R.5. Rule 10.2. the funds and sources of which originated from and/or are materially linked to the monetary instrument(s) or property(ies) subject of the freeze order(s). . Rule 10.A. 9165.Page 18 Rule 10. and 6.Before the twenty (20) day period of the freeze order issued by the court of appeals expires.31 4. said period shall be deemed suspended and the freeze order shall remain effective. as amended. 1405. No. 10.No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period. the AMLC may apply in the same court for an extension of said period. No. All relevant information as to the nature of the monetary instrument or property. 13.A. Definition of Related Web of Accounts. as defined under the Revised Manual of Regulations for Non-Bank Financial Institutions .2. R. otherwise known as the Revised Penal Code. The time when the freeze thereon took effect. Any information on the related web of accounts pertaining to the monetary instrument or property subject of the freeze order.The AMLC may inquire into or examine deposit and investments with any banking institution or non-bank financial institution and their subsidiaries and affiliates without a Court Order where any of the following unlawful activities are involved: (a) Kidnapping for ransom under Article 267 of Act No. 6235. . BSP Rules of Examination. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture. Any findings of the BSP which may constitute a violation of any provision of this act shall be transmitted to the AMLC for appropriate action. Duty of the banking institution or non.12. including those perpetrated by terrorists against noncombatant persons and similar targets. the Revised Rules of Court on civil forfeiture shall apply. Rule 11. as amended.a. – When there is a Suspicious Transaction Report or a Covered Transaction Report deemed suspicious after investigation by the AMLC.Where any of the unlawful activities enumerated under the immediately preceding Rule 11.1. Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA.Page 19 . .2 are involved. related to said report. the offender or any other person claiming an interest therein may apply.3. RULE 12 FORFEITURE PROVISIONS Rule 12.2. the BSP may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates when the examination is made in the course of a periodic or special examination. The BSP shall promulgate its rules of examination for ensuring compliance by banks and non-bank financial institutions and their subsidiaries and affiliates with the AMLA and these rules. allow the AMLC and/or its authorized representative(s) full access to all records pertaining to the deposit or investment account. in accordance with the rules of examination of the BSP.a. N-4 05. Rule 12.To ensure compliance with this act.b.2. . in whole or in part. Rule 12. immediately upon receipt of the AMLC Resolution.3.BSP Authority to Examine deposits and investments.31 Penal Code. and the court has. Procedure For Examination Without A Court Order.APP. by verified petition. . in default of which the said order shall become final and Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . Authority to Institute Civil Forfeiture Proceedings. Rule 11. and for segregation or exclusion of the monetary instrument or property corresponding thereto.banking institution upon receipt of the AMLC Resolution. – The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. and there is probable cause that the deposits or investments with any banking or non-banking financial institution and their subsidiaries and affiliates are in anyway related to these unlawful activities the AMLC shall issue a resolution authorizing the inquiry into or examination of any deposit or investment with such banking or non-banking financial institution and their subsidiaries and affiliates concerned. Rule 11.2. Rule 11. for a declaration that the same legitimately belongs to him.3. Claim on Forfeited Assets. The banking institution or the non-banking financial institution and their subsidiaries and affiliates shall. When Civil Forfeiture May be Applied. Additional Exception to the Bank Secrecy Act. ordered the seizure of any monetary instrument or property. in a petition filed for the purpose. directly or indirectly. attributable to the offender.3. Obtaining Assistance from Foreign States. any or all of the persons named in said request. converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof.4. Powers of the AMLC to Act on a Request for Assistance from a Foreign State. destroyed. .APP.Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense. thereby rendering the same difficult to identify or be segregated for purposes of forfeiture. (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules. or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court.Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA. (2) obtaining information that it needs relating to any covered transaction. This provision shall apply in both civil and criminal forfeiture. restraining and seizing assets alleged to be proceeds of any unlawful activity. be at all times recognized. and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided. freezing. directly or indirectly. the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for N Regulations Appendix N-4 . That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state. .2.31 executory. Rule 13.The AMLC may make a request to any foreign state for assistance in (1) tracking down. or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity. restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules. applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of. the court may. removed. freezing. and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. or it has been substantially altered. diminished in value or otherwise rendered worthless by any act or omission. (3) to the extent allowed by the law of the foreign state.Page 20 delaying the execution thereof. Rule 12. The principles of mutuality and reciprocity shall.1. . be located.The AMLC may execute a request for assistance from a foreign state by: (1) tracking down. with due diligence. instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein. accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. for this purpose. or it has been concealed. N-4 05. Rule 13. RULE 13 MUTUAL ASSISTANCE AMONG STATES Rule 13. Manual of Regulations for Non-Bank Financial Institutions . Request for Assistance from a Foreign State. money laundering offense or any other matter directly or indirectly related thereto. Payment in Lieu of Forfeiture.12. . This provision shall apply in both civil and criminal forfeiture. and said order cannot be enforced because any particular monetary instrument or property cannot. material or object obtained pursuant to said request.6. consul.5. and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided. Rule 13. material or object named in said request: Provided.The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines. secretary of state. Rule 13. vice consul. or of the person administering the government or a department of the requesting territory. magistrate or equivalent officer in or of. the requesting state. (5) ask from the covered institution concerned any information. protectorate or colony.31 and/or search any or all such persons named therein and/or remove any document. That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. (6) specify the manner in which and to whom said information. The certificate of authentication may also be made by a secretary of the embassy or legation. (7) give all the particulars necessary for the issuance by the court in the requested state of the writs. . unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses.Page 21 . a document is authenticated if the same is signed or certified by a judge. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 . consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept.7. Rule 13. document. (4) give particulars sufficient to identify any covered institution believed to have any information. document. Suppletory Application of the Revised Rules of Court. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA. – Rule 13. Limitations on Requests for Mutual Assistance.1. That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state. or officer in or of. Rule 13. (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction. N-4 05.4. material or object which may be of assistance to the investigation or prosecution. Requirements for Requests for Mutual Assistance from Foreign States. A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense. is to be produced. material or object which may be of assistance to the investigation or prosecution. Authentication of Documents . and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister. the government of the requesting state. document. orders or processes needed by the requesting state.7.For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA.12. (3) give sufficient particulars as to the identity of said person. consul general.APP. and (8) contain such other information as may assist in the execution of the request. and authenticated by the seal of his office. convention. Rule 14. and assistance for any of the aforementioned actions.0 Million.A.Page 22 RULE 14 PENAL PROVISIONS Rule 14. Rule 14. Penalties under Section 4 (c) of the AMLA.(1) After due notice and hearing. Penalties under Section 4 (b) of the AMLA.12. With respect.000. resolutions and other directives of the United Nations (UN).d. its officers and employees. Rule 14. Rule 13.1.31 execution and satisfaction of final judgments of forfeiture.0 Million but not more than twice the value of the monetary instrument or property involved in the offense.1. N-4 05.b. shall be imposed upon a person convicted under Section 4 (a) of the AMLA. Penalties under Section 4 (a) of the AMLA. . the UN Security Council.5 Million but not more than Php3. No.1. included as an extraditable offense in any extradition treaty existing between said state parties. However. . – The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on 22 October 2001. money laundering is deemed to be N Regulations Appendix N-4 . resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. at its discretion. the AMLC shall. which is subject of a request by a foreign state. Extradition.1.00 but not more than Php500. as amended by Manual of Regulations for Non-Bank Financial Institutions . Rule 14. and other international organizations of which the Philippines is a member.The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Php3. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions.00. – The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations.7.The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than Php1. Penalties for the Crime of Money Laundering.c. .APP. and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. however. the AMLC may refuse to comply with any such request. or both. impose fines upon any covered institution.8.000.1. resort may be had to the proceedings pertinent thereto under the Revised Rules of Court.2. shall be imposed upon a person convicted under Section 4 (b) of the AMLA. 9160. production of bank documents and other materials and all other actions not specified in the AMLA and these Rules. Authority to Assist the United Nations and other International Organizations and Foreign States. procuring search warrants. shall be imposed on a person convicted under Section 4(c) of the AMLA.a.The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than Php100. Rule 13. application for examination of witnesses. Administrative Sanctions. . or any person who violates any of the provisions of R. shall be imposed on a person convicted under Section 9 (b) of the AMLA.000. as the case may be. the court may suspend or revoke its license. Refusal by a Public Official or Employee to Testify. . writer.000. or in bad faith. as the case may be. In case of a breach of confidentiality that is published or reported by media. he shall. reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than Php100. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. . If the offender is a public official or employee. partnership or any juridical person. such as the nature and gravity of the violation or irregularity. at the discretion of the court: Provided.2.00 but not to exceed Php500. Penalties for Failure to Keep Records . Exception.00 but not more than Php500. The imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the persons responsible for the violations.00.000.The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce.00 but not more than Php500. Rule 14. That the offender is not entitled to avail the benefits of the Probation Law. Rule 15.Any person who. in addition to the penalties herein prescribed. 9194 and rules. president. the penalty shall be imposed upon the responsible officers.0 Million. Penalties for Breach of Confidentiality. or both.000.00.APP.A.000.If the offender is a corporation. . association.00. regulations. – The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Php500.4. . – Remedies Rule 15.00 but not more than Php1. If the offender is an alien. N-4 05. If the offender is a juridical person.2. or allowed by their gross negligence the commission of the crime. Rule 14. Prohibition against Political Persecution. in addition to the penalties prescribed herein.Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein. taking into consideration all the attendant circumstances. shall be imposed on a person convicted for a violation under Section 9(c). he shall. Where Offender is a Juridical Person.5. Rule 14. manager and editor-in-chief shall be liable under this act. with malice. the responsible reporter.3.The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than Php100. for provisional remedies to prevent the Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 .2. Rule 14.000.12.1.The AMLC may apply.31 R. be deported without further proceedings after serving the penalties herein prescribed. suffer perpetual or temporary absolute disqualification from office. who participated in. in the course of the criminal proceedings. The fines shall be in amounts as may be determined by the council.a. publisher. . RULE 15 PROHIBITIONS AGAINST POLITICAL HARASSMENT Rule 15. Rule 14. orders and resolutions issued pursuant thereto.Page 23 . Penalties for Malicious Reporting. but in no case shall such fines be less than Php100. Provisional Application. No.6.000. a.2. – Rule 17. No.b.APP. – (a) Within thirty (30) days from the effectivity of R. but not limited to. under their N Regulations Appendix N-4 . detection and reporting. Rule 17. 9160. Money Laundering Prevention Programs.c. commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. RULE 16 RESTITUTION Rule 16. and set-up an audit function to test the system. . Restitution. set-up an effective dissemination of information on money laundering activities and their prevention. the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. No. institute adequate screening and recruitment procedures. as amended by R. the BSP. and the training of responsible officers and personnel of covered institutions.1. as amended by R. the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA.b. 9194. However. no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. a system of flagging and monitoring transactions that qualify as suspicious transactions. adopt internal policies. However. converted. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules. Rule 17. Covered institutions shall adopt.A.Where there is conviction for money laundering under Section 4 of the AMLA. as part of their money laundering programs. designate compliance officers at management level.Page 24 own respective charters and regulatory authority. information dissemination on money laundering activities and their prevention.Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. RULE 17 IMPLEMENTING RULES AND REGULATIONS AND MONEY LAUNDERING PREVENTION PROGRAMS Rule 17. issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of R. procedures and controls. detection and reporting. Rule 17. subject to such guidelines as may be prescribed by their respective supervising authority. the SEC and the IC shall. including.2.12. No. institutionwide “know-your-client” policy. .A. Every money laundering program shall establish detailed procedures implementing a comprehensive.A.31 monetary instrument or property subject thereof from being removed. which shall be submitted to the Congressional Oversight Committee for approval. Rule 15. 9194.2. No. Implementing Rules and Regulations. (b) The Supervising Authorities. N-4 05. regardless of amount or covered Manual of Regulations for Non-Bank Financial Institutions . the BSP.2. 9160.2. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. concealed. no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period.A. 9194. The members Rule 18. Rule 19. Composition of Congressional Oversight Committee.2. . N-4 05. suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. or has been committed.2. . as amended by R. Rule 19. The costs and expenses incurred in defending the aforementioned action. from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations.A.A.1. Costs and Expenses. – The budget of Php25. No. . shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be. The BSP shall advance the funds necessary to defray the capital outlay.These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of R. Amendments. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority.0 million appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. criminal or administrative action.Page 25 . 9160.APP. All covered institutions. Rule 17. Training of Personnel. including banks insofar as non-deposit and nongovernment bond investment transactions are concerned.3. . RULE 19 APPROPRIATIONS FOR AND BUDGET OF THE AMLC Rule 17. Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules. Appropriations for succeeding years shall be included in the General Appropriations Act.The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil. Budget.12. RULE 18 CONGRESSIONAL OVERSIGHT COMMITTEE Rule 18.1.The Oversight Committee shall have the power to promulgate its own rules. No.31 transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. to oversee the implementation of this Act. is being. suit or proceeding may be paid by the AMLC in advance of the Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-4 .4. Powers of the Congressional Oversight Committee.There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. 12. No. Rule 23.APP.Transitory Provisions. amended or modified accordingly. R. executive orders. – All laws. . as amended. unless otherwise dissolved by the same court. No. 6426.Page 26 are hereby repealed. N-4 05. unless extended by the Court of Appeals. suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. 9194 on Cases for Extension of Freeze Orders Resolved by the Court of Appeals. as amended.A.Effect of R.A. – If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid.A. Existing freeze orders issued by the AMLC shall remain in force for a period of thirty (30) days after effectivity of this act. shall not be affected thereby. .A. the other provisions of these Rules. 8791. No. .All existing freeze orders which the Court of Appeals has extended shall remain effective. RULE 23 TRANSITORY PROVISIONS Rule 23.2. 1405.31 final disposition of such action. No. as are inconsistent with the AMLA. and the application of such provision or Rule to other persons or circumstances. Manual of Regulations for Non-Bank Financial Institutions . decrees. RULE 21 REPEALING CLAUSE Rule 21. RULE 20 SEPARABILITY CLAUSE Rule 20. Effectivity. and other similar laws. R. – These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. Repealing Clause. as amended.1. Separability Clause. N Regulations Appendix N-4 . including the relevant provisions of R. RULE 22 EFFECTIVITY OF THE RULES Rule 22. rules and regulations or parts thereof. trust entity or NSSLA. associates and the auditor-in-charge of the engagement and members of their immediate family. such as the GAAS and the Code of Professional Ethics for CPAs. 4180N) A. auditor-incharge and members of the audit team must adhere to the highest standards of professional conduct and shall carry out services in accordance with relevant ethical and technical standards. further. Such other services which could affect his independence as may be determined by the Monetary Board. its subsidiaries and affiliates. Banks. APPOINTMENT AND THE REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF NBFIs (Appendix to Sec.QB. QBs. The external auditor must not be currently engaged nor was engaged during the preceding year in providing the following services to the bank. b. or if his independence is considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs. Information systems design. trust entity or NSSLA its subsidiaries and affiliates: a. 2.12. GENERAL REQUIREMENTS Only external auditors included in the list of BSP selected external auditors shall be engaged by banks. its subsidiaries and affiliates at the time of signing the engagement and during the engagement. QBs.31 GUIDELINES TO GOVERN THE SELECTION. QB. trust entity or NSSLA if he or any member of his immediate family has or has committed to acquire any direct or indirect financial interest in the bank. this prohibition shall apply to the partners and the auditorin-charge of the engagement. The external auditor. trust entity or NSSLA. The external auditor should have the following track record in conducting external audits: a. implementation and assessment. QB. 3. 5. No external auditor may be engaged by a bank. trust entities or NSSLAs which have engaged their respective external auditors for a consecutive period of five (5) years or more as of 26 November 2003 (effectivity of Circular No. this limitation shall apply to the partners. The external auditor to be hired shall also be in-charge of the audit of the entity’s subsidiaries and affiliates engaged in allied activities: Provided. That the rotation of the lead and concurring partner shall have an interval of at least two (2) years. and c. The external auditor for a UB or KB must have at least twenty (20) existing corporate clients with resources of at least P50. N-5 06. 4. trust entities or NSSLAs for regular audit or special engagements.0 million each and at least one (1) existing client UB or KB in the regular audit or in lieu thereof.Page 1 . That the external auditor shall be changed or the lead and concurring partner shall be rotated every five (5) years or earlier: Provided.APP. In the case of a partnership. the external auditor or the auditor-in-charge of the engagement Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-5 . In the case of partnership. Internal audit functions. The external auditor and the members of the audit team do not have/ shall not have outstanding loans or any credit accommodations (except credit card obligations which are normally available to other credit card holders and fully secured auto loans and housing loans which are not past due) with the bank. 410) shall have a one (1) year period from said date within which to either change their external auditors or rotate the lead and/or concurring partner. The following are the selection requirements for external auditors: 1. QB. The external auditor must undertake to keep for at least five (5) years all audit or review working papers in sufficient detail to support the conclusions in the audit report which shall be made available to the BSP upon request. trust entity. QB. That an external auditor who has been selected by the BSP to audit a UB. associates. partners. chief accounting officer or any position of equivalent rank. the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of TBs. QB. auditor-in-charge of the engagement and the members of their immediate family shall not acquire any direct or indirect financial interest with a bank. its subsidiaries and affiliates where they have outstanding loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans which are not past due). NSSLA. NSSLA. associates. chief financial officer. Neither shall the external auditor. trust entity or national Coop Bank. QB. An undertaking: a. That the external auditor.0 million each and at least one (1) existing client TB. local Coop Bank and NSSLA.12. The external auditor for an RB or local Coop Bank must have at least three (3) years track record in conducting external audit: Provided. in case of partnership and shall be submitted to the appropriate department of the SES together with the following documents/ information: 1. QB. trust entity and national Coop Bank is automatically qualified to audit an RB. controller.APP. That the external auditor. its subsidiaries and affiliates as chief executive officer. its subsidiaries and affiliates where he was engaged during the preceding year in providing the following services: Manual of Regulations for Non-Bank Financial Institutions . and 7. QB. APPLICATION AND PREQUALIFICATION REQUIREMENTS The application for BSP selection shall be signed by the external auditor or the managing partner. QB. trust entity or national Coop Bank in the regular audit or in lieu thereof. N-5 06.Page 2 B. NSSLA. but shall not be limited to. TB. 6. QBs. trust entity. trust entity. QB. trust entity and national Coop Bank must have at least ten (10) existing corporate clients with resources of at least P25. That an external auditor who has been selected by the BSP to audit a UB or KB is automatically qualified to audit a TB. auditor-in-charge and members of the audit team do not have nor shall apply for loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans) nor shall accept an audit engagement with a bank. trust entity. A bank. b. QB. Working papers shall include. c. N Regulations Appendix N-5 . its subsidiaries and affiliates. partners. audit scope and detailed work program. b.31 must have at least five (5) years experience in the regular audit of UBs or KBs. trust entity. partners. trust entity or NSSLA shall not engage the services of an external auditor whose partner or auditorin-charge of audit engagement during the preceding year had been hired or employed by the bank. associates and auditor-in-charge accept an audit engagement with a bank. The external auditor for a TB. pre-audit analysis. QB. NSSLA. and c. trust entities or national Coop Banks: Provided. QB. its subsidiaries and affiliates where they or any member of their immediate family have any direct or indirect financial interest and that their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs. That the external auditor shall not accept an audit engagement with a bank. NSSLA. KB. Certification from PRC that the external auditor. previous conviction or any pending investigation. negate the auditor’s adherence to the highest standards of professional conduct nor degrade his integrity and objectivity. and 2. However. List of existing corporate clients with resources of at least P50. and list of existing clients and/or details of three (3) years track record in external audit for external auditors of an RB. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-5 . That the external auditor and members of the audit team shall adhere to the highest standards of professional conduct and shall carry out their services in accordance with relevant ethical and technical standards of the accounting profession. That the lead or concurring partner and auditor-in-charge shall not accept employment with the bank.0 million each. 2. lead partner.. trust entity.12. has no existing client TB or national Coop Bank. Such other services. auditor-in-charge and members of the audit team have no derogatory information. QB. and 3. Information systems design. for a TB. That the external auditor shall not accept an audit engagement with a bank. chief executive officer. chief accounting officer or other senior officer of equivalent rank) had been a partner of the external auditor or had worked for the audit firm and had been the auditor-in-charge of the audit engagement of said entities during the year immediately preceding the engagement. e. in the event that the certification cannot be obtained because of the pendency of a case. Loans and other risk assets review and classification. and h. such as. chief financial officer. QB. QB. Updated PRC license (for individual auditors) and business license for the partnership.APP. affect audit engagement existing as of 26 November 2003 (effectivity of Circular No. trust entity and national Coop Bank. N-5 06. If the external auditor for a UB or KB has no existing UB or KB client. CAR. and national Coop Bank. 2. g. but not limited to the following: 1. concurring partner. and the external auditor for a TB. This requirement shall not. list of existing corporate clients with resources of at least P25. in any way. 410). a notarized certification that the external auditor or the auditor-in-charge of the engagement has at least five (5) years experience in the regular audit of banks of appropriate category mentioning the banks they have audited. That the audit work shall include assessment of the audited institution’s compliance with BSP rules and regulations. NSSLA. QB. controller. Internal audit functions. Copy of the proposed engagement contract between the bank. or does not. and e. b. d. f. That the external auditor shall keep all audit or review working papers for at least five (5) years in sufficient detail to support the conclusions in the audit report. which could affect his independence as may be determined by the Monetary Board from time to time. c. its subsidiaries and affiliates being audited during the engagement period and within a period of one (1) year after the audit engagement. the BSP may dispense with this requirement upon determination by the Monetary Board that the case involves purely legal question. however. trust entity. NSSLA. NSSLA. implementation and assessment.0 million each for external auditor of a UB or KB.31 1. NSSLA and a local Coop Bank.e. d. trust entity or NSSLA and the external auditor where applicable. Other documents/information: a. trust entity. QB.Page 3 . its subsidiaries and affiliates where an officer (i. It is. To enable the BSP to take timely and appropriate remedial action. QB. c. fraud. Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit). Power to appoint or remove the majority of the members of the board of directors or equivalent governing body. trust entity. In case there are no matters to report (e. trust entity or NSSLA. b. QB. trust entity or NSSLA. Discovery of a material breach of laws or BSP rules and regulations such as. Loans and other risk assets review and classification. Manual of Regulations for Non-Bank Financial Institutions . the external auditor must report to the BSP within thirty (30) calendar days after discovery.g. Control may also exist even when ownership is one half or less of the voting power of an enterprise when there is: a. etc. 3. 2. N-5 06. REQUIRED REPORTS 1. controlled or held with power to vote by a bank. QB. breach of laws. but not limited to: 1. Power over more than one-half of the voting rights by virtue of an agreement with other stockholders. understood that the accountability of an external auditor is based on matters within the normal coverage of an audit conducted in accordance with GAAS. it can be clearly demonstrated that such ownership does not constitute control. trust entity. The management of the bank.12. its subsidiaries and affiliates shall be given the opportunity to be present in the discussions between the BSP and the external auditor regarding the N Regulations Appendix N-5 . Control. 3. DEFINITION OF TERMS For purposes of these guidelines. The management of the bank.APP. Termination or resignation as external auditor and stating the reason therefor. controlled or held with power to vote by a bank. Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital.Page 4 audit findings. NSSLA. c. D.31 C. the following terms shall be defined as follows: 1. b. Subsidiary. NSSLA and a juridical person that is under common control with the bank. Findings on matters of corporate governance that may require urgent action by the BSP. A corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned. its subsidiaries and affiliates shall be informed of the adverse findings and the external auditor’s report to the BSP shall include its explanation and/ or corrective action.. and 2. dishonesty. in exceptional circumstance. Affiliate. Power to govern the financial and operating policies of the enterprise under a statute or an agreement. 2. QB. however. not more than fifty percent (50%) but not less than ten percent (10%) of the outstanding voting stock of which is directly or indirectly owned. the following cases: a. A corporation. NSSLA. Exists when the parent owns directly or indirectly more than one half of the voting power of an enterprise unless. and b. trust entity. QB. CAR.) the external auditor shall submit directly to the BSP within fifteen (15) calendar days after the closing of the audit engagement a notarized certification that there is none to report. The external auditor shall report directly to the BSP within fifteen (15) calendar days the occurrence of the following: a. except in circumstances where the external auditor believes that the entity’s management is involved in fraudulent conduct. and where relevant. inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. Any director. Auditor-in-charge. or NSSLAs. That the bank. shall be allowed. Any other arrangement similar to any of the above. The BSP will circularize to all banks. 4. trust entity. QBs. Said contract shall include the following provisions: 1. The partner who is responsible for reviewing the audit report. All partners including those not performing audit engagements. Partner. SPECIFIC REVIEW When warranted by supervisory concern. QBs. That both parties shall comply with all of the requirements under these guidelines. The BSP. manager or any person occupying a similar status or performing similar functions in the audit firm including employees performing supervisory role in the auditing process. or non-compliance with any provision of these guidelines or in case of dissolution of the audit firm except when said dissolution was solely for the purpose of admitting new partner/s and the new partner/s have complied with the requirements of these guidelines. N-5 06. within thirty (30) calendar days after the conclusion of said review. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-5 . QB. G. Also referred to as the engagement partner/partner-in-charge/ managing partner who is responsible for signing the audit report on the consolidated financial statements of the audit client. INCLUSION IN BSP LIST In case of partnership. Grounds for delisting External auditors may be delisted from the list of BSP selected external auditor for the bank. and 3. or NSSLA shall be responsible for keeping the auditor fully informed of existing and subsequent changes to prudential. officer. Associate. Refers to the team leader of the audit engagement. That disclosure of information by the external auditor to the BSP as required under Items "C" and "F" hereof. however. NSSLA. QB. E. and NSSLAs. trust entities. H. Power to cast the majority votes at meetings of the board of directors or equivalent governing body. the individual audit report of any entity whose financial statements form part of the consolidated financial statements. shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks. for regular audit or special engagements. QBs. 2. the Monetary Board may. or e. DELISTING OF EXTERNAL AUDITORS 1. shall submit the audit engagement contract between them. its subsidiaries and affiliates require the external auditor to undertake a specific review of a particular aspect of the operations of these institutions. at the expense of the bank. Lead Partner.31 d.Page 5 . 6. 8. AUDIT ENGAGEMENT CONTRACT Banks.12. regulatory and statutory requirements of the BSP and that both parties shall comply with said requirements. 7. QB. trust entity or NSSLA for violation of. their subsidiaries and affiliates and the external auditor to the appropriate department of the SES within fifteen (15) calendar days from signing thereof. The report shall be submitted to the BSP and the audited institution simultaneously. 5. trust entity. trust entities and NSSLAs the list of selected external auditors once a year. Concurring Partner.APP. trust entities. F. to conduct. (As amended by Circular No.31 2. Delisted external auditor may re-apply for BSP selection after the period prescribed by the Monetary Board. either personally or by a committee created by the board.A.12. AUDIT BY THE BOARD OF DIRECTORS Pursuant to Section 58 of R. NSSLA or the individual members thereof. No. I. QB. Procedure for delisting An external auditor shall only be delisted upon prior notice to him and after giving him the opportunity to be heard and defend himself by presenting witnesses/ evidence in his favor. QB. otherwise known as “The General N Regulations Appendix N-5 .Page 6 Banking Law of 2000” the Monetary Board may also direct the board of directors of a bank. trust entity. an annual balance sheet audit of the bank. N-5 06. 8791. 529 dated 11 May 2006) Manual of Regulations for Non-Bank Financial Institutions .APP. trust entity or NSSLA to review the internal audit and the internal control system of the concerned entity and to submit a report of such audit to the Monetary Board within thirty (30) calendar days after the conclusion thereof. or in behalf of others.0 million or such amounts as may be required by the Monetary Board in the future NBFIs Adjusted capital of at least P300. f. OR ANY BODY POLITIC (Appendix to Subsec. Its risk-based capital adequacy ratio is not lower than twelve percent (12%) at the time of filing the application.APP. acting as trustee or administering any trust or holding property in trust or on deposit for the use. g. provisions on the following: (1) The organization plan or structure of the department. governmentowned or controlled corporation. It has not incurred net weekly reserve deficiencies during the eight (8) weeks period immediately preceding the date of application. It must have a license to engage in trust and other fiduciary business. h. orders or instructions of the Monetary Board and/ or BSP Management in the last two preceding examinations prior to the date of application. It must have complied with the minimum capital accounts required under existing regulations. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-6 . d. e. It must be a bank or NBFI under BSP supervision. or any body politic must comply with the following requirements: a. as follows: UBs and KBs The amount required under existing regulations or such amount as may be required by the Monetary Board in the future Branches of The amount required under Foreign Banks existing regulations Thrift Banks P650. The bank’s operation during the preceding calendar year and for the period immediately preceding the date of application has been profitable. The by-laws of the institution shall include among others. c. particularly on the following: (1) election of at least two (2) independent directors.31 QUALIFICATION REQUIREMENTS FOR A BANK/NBFI APPLYING FOR ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR BOND ISSUED BY ANY MUNICIPALITY. rules and regulations. 4109N.Page 1 . i. (2) attendance by every member of the board of directors in a special seminar for board of directors conducted or accredited by the BSP. It has generally complied with banking laws. office or unit which shall conduct the trust and other fiduciary business of the institution.12. GOVERNMENT-OWNED OR CONTROLLED CORPORATION.16) A bank/NBFI applying for accreditation to act as trustee on any mortgage or bond issued by any municipality. b. the appointment of a trust officer and subordinate officers of the trust department. (2) The creation of a trust committee. N-6 05. officers and staff within the organization.0 million or such amount as may be required by the Monetary Board in the future. The articles of incorporation or governing charter of the institution shall include among its powers or purposes. and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units. (4) liquidity floor requirements for government deposits. effective internal controls and complete. k. It is a member of the PDIC in good standing (for banks only).Page 2 l. N-6 05. adequate risk measurement systems. (5) single borrower’s loan limit. It has established a risk management system appropriate to its operations characterized by clear delineation of responsibility for risk management. It does not have float items outstanding for more than sixty (60) calendar days in the “Due From/To Head Office/Branches/Other Offices” accounts and the “Due from Bangko Sentral” account exceeding one percent (1%) of the total resources as of date of application. m.31 (3) the ceilings on credit accommodations to DOSRI. It maintains adequate provisions for probable losses commensurate to the quality of its assets portfolio but not lower than the required valuation reserves as determined by the BSP. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. N Regulations Appendix N-6 . Manual of Regulations for Non-Bank Financial Institutions . appropriately structured risk limits. and n.12. and (6) investment in bank premises and other fixed assets. timely and efficient risk reporting system. Compliance with the foregoing as well as with other requirements under existing regulations shall be maintained up to the time the trust license is granted.APP. j. It has a CAMELS Composite Rating of at least "3" in the last regular examination with management rating of not lower than "3". if certificated.2. Pertinent registry rules and procedures h. e. Functions of the registry g.APP. commercial papers and other negotiable and non-negotiable securities or instruments that are not documented in accordance with existing BSP regulations and that it has strictly complied with the pertinent rules of the SEC and the BSP on the proper sale of securities to the public and performed the necessary representations and disclosures on the securities particularly the following: 1. b. Risk factors and investment considerations. 4211N. 392 dated 23 July 2003 – • Securities sold under repurchase agreements shall be physically delivered. and f. OTC or exchange). I hereby certify that on all banking days of the semester ended _____ that the ____________________ (NBFI) did not enter into any repurchase agreement covering government securities. such as. to a BSP-accredited custodian that is mutually acceptable to the client and the NBFI.Page 1 .1. Procedures for selling the security in the secondary market (e.31 FORMAT CERTIFICATION (Appendix to Subsec. Disposition of the security g. Informed the client that pursuant to BSP Circular No. or by means of book-entry transfer to the appropriate securities account of the BSP-accredited custodian in a registry for said securities. a copy of the prospectus or information sheet of the security. if immobilized or dematerialized. N-7 05. Authorized selling agents.12) ______________________________ Name of Bank CERTIFICATION Pursuant to the requirements of Subsec 4211N. Registry (address and contact numbers) g. but not limited to: a. Informed and explained to the client all the basic features of the security being sold on a without recourse basis. and Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-7 . Minimum selling lots.. Applicable interest rate and its computation.3. g.1. f. i.12.2. c. Liquidity feature of the instrument: f.g. f.12. Issuer and its financial condition. Collecting and Paying Agent of the principal and interest Other pertinent terms and conditions of the security and if possible. tax paid or tax-exempt). Tax features (whether taxable. Term and maturity date. d. 2.3. N-7 05. No.APP. Date/Place Issued Notary Public N Regulations Appendix N-7 . or by means of book-entry transfer to the appropriate securities account of the purchaser or his designated custodian in a registry for said securities if immobilized or dematerialized 3. The NBFI is not performing any advisory or fiduciary function. _______________ Name of Officer Position Date _____________ SUBSCRIBED AND SWORN to before me. and b. or to his designated custodian duly accredited by the BSP.31 • Securities sold on a without recourse basis are required to be delivered physically to the purchaser. the sole credit risk shall be borne by the client. affiant exhibiting his Community Tax Certificate No.Page 2 Manual of Regulations for Non-Bank Financial Institutions . Clearly stated to the client that: a. this _____ day of _____.(s) as indicated below: Name Community Tax Cert.12. The NBFI does not guarantee the payment of the security sold on a “without recourse basis” and in the event of default by the issuer. if certificated. N-7 05. affiant exhibiting his Community Tax Certificate as indicated below: Name Community Tax Date/Place Cert. commercial papers and other negotiable and non-negotiable securities or instruments that are not documented in accordance with existing BSP regulations.12. Issued Notary Public Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-7 . the ____________________ (name of NBFI) does not have any outstanding repurchase agreements covering government securities.APP. ____________________ Name of Officer Position SUBSCRIBED AND SWORN to before me. this _____ day of _____. 4211N.Page 3 . No. I hereby certify that as of 31 January 2005.12.31 Annex N-7-a FORMAT CERTIFICATION ______________________________ Name of NBFI CERTIFICATION Pursuant to the requirements of Subsec. Date Bangko Sentral ng Pilipinas A. Very truly yours.. president or officer of equivalent rank. N-8 05. rules and regulations. Manila Gentlemen: We hereby apply for authority to act as (foreign exchange dealer/money changer or remittance agent). we submit the following documents: o Incorporation papers duly authenticated by the Securities and Exchange Commission (for corporation or partnership). o Copy of the Certificate of Registration with the Department of Trade and Industry (for single proprietorship). o List of stockholders/partners/proprietor/directors/principal officers as the case maybe.Page 1 . signed by the owner. Mabini St. ___________________________________________ (Signature of authorized officer over printed name) _________________________ Designation Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 . o Copy of business license/permit from the city or municipality having territorial jurisdiction over the place of establishment and operation. Application for Registration Name of Applicant Address Telephone No.31 REGISTRATION AND OPERATIONS OF FOREIGN EXCHANGE DEALERS/ MONEY CHANGERS AND REMITTANCE AGENTS (Appendix to Sec. 4511N) A. o Notarized Deed of Undertaking to strictly comply with the requirements of all relevant laws.12./Fax No. We are currently engaged in this business since _____ (if applicable). In support of this application. partner.APP. Malate. otherwise known as the “New Central Bank Act” and other applicable laws. rules and regulations of the Bangko Sentral ng Pilipinas regarding the licensing and operations of foreign exchange dealers/money changers/remittance agents as well as with all the provisions of the Anti-Money Laundering Act of 2001 (R. 7653. as amended by R.A. Understands and accepts that in case of violations of any of the aforementioned laws. of legal age and under oath. No. DEED OF UNDERTAKING I. No.Page 2 Manual of Regulations for Non-Bank Financial Institutions .31 B. affiant exhibiting to me his/her Community Tax Certificate No.APP. (name of institution) and its Board of Directors/Partners/Owners/Stockholders/Officers/employees responsible for such violation/ s shall be subject to the administrative sanctions prescribed under Section 36 of R. through and with full knowledge and agreement of its Board of Directors/Partners/Owners.A. 3.12. 9160) and its implementing rules and regulations. 2. declare the following: 1. 9194) and its implementing rules and regulations. That I certify that (name of institution) undertakes to strictly comply with all the requirements. No. No.A. That I have been duly authorized by (name of institution) and its Board of Directors/ Partners/Owners to bind (name of institution) to strictly comply with all the requirements. ___________________ issued at _______________ on _______. rules and regulations. rules and regulations of the Bangko Sentral ng Pilipinas regarding the registration and operations of foreign exchange dealers/money changers/remittance agents as well as the provisions of the Anti-Money Laundering Act of 2001 (R.A. N-8 05. Deed of Undertaking Name of Applicant Address Telephone No. NOTARY PUBLIC N Regulations Appendix N-8 . (name and designation)./Fax No. rules and regulations. _________________________ (Signature over printed name) _________________________ Designation Subscribed and sworn to before me this _____ of __________. 9160. That I certify that (name of institution). 20____. APP. Amount Sold/Purchased : In figures _________________ In words _________________ 10. Purpose of Purchase OFW/Balikbayan/Returning Resident Tourist Expatriate based in the Philippines Foreign Currency Deposit Account Holder Domestic Resident – Excess Travel Funds Others (please specify) :__________________________ Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 .12. Signature :_________________________ 4. Printed Name of Customer :_________________________ 3. Present Address :_________________________ 5. Date and Place of Birth :_________________________ 6.31 C. Source of Foreign Currency :_________________________ __________ __________ __________ __________ __________ __________ 11. Date :_________________________ 2. Telephone Number :_________________________ 7. N-8 05. Application to Sell/Purchase Foreign Currency ___________________________________________________________ Name of Foreign Exchange Dealer/Money Changer/Remittance Agent ________________________________ Address APPLICATION TO SELL/PURCHASE FOREIGN CURRENCY 1. Currency Sold/Purchased : US Dollar _____ Others (specify) 9.Page 3 . Nationality :_________________________ 8. Educational Expenses/Student Maintenance 1. and/or passenger ticket. Sale of foreign exchange for non-trade purposes under Section 2 of Circular No. if applicable. Minimum Documentary Requirements For the Sale of Foreign Currencies A. Statement of enrollment or acceptance by the school abroad. For travel funds over US$5. Billings from the school abroad which shall include assessment of fees and other charges related to the course. a notarized certification that the amount applied for is to cover his expenses. 2. copies of which shall be retained. Applicant’s notarized certification that he is not under scholarship. Invitation from foreign sponsoring institution. 2. Proof of admission or enrollment in correspondence school. Travel authority from the applicant’s company/office/agency if he is being sponsored by said company/office/ agency. 1.Page 4 Manual of Regulations for Non-Bank Financial Institutions . or if under scholarship. Correspondence Studies AABs/NBBSEs/Forex Corp. which shall be directly remitted to the correspondence school. 1389 s. 3.12. may sell foreign exchange to cover tuition fees for correspondence studies. Travel Funds (only for permanent residents of the Philippines) Presentation of applicant’s passport. or b. Copy of applicant’s/Sponsor's Income Tax Return (ITR) duly stamped by the BIR. and c. the following shall be additionally required: a. 1993. School bills/statements of account covering tuition and other school fees. Issuane of draft may be payable to the correspondence school.APP. and/or 3. not being covered by the scholarship. N Regulations Appendix N-8 .31 D. as amended Purpose Documents Required 1. N-8 05. and/or 2.000. whichever is applicable. Travel documents of patient. 5. copy of deed of sale. marriage contract. spouse or parent of a Philippine resident. Certified true copy of birth certificate. Medical Expenses 1. child or parent of the remitter applicant. Emigrants' Assets 1. N-8 05.Page 5 . 2. In case of transfer of proceeds of sale of shares of stock. Support of Dependents Abroad AABs may sell foreign exchange covering the monthly living allowance abroad of a child not more than 21 years of age. or statement of account with the hospital/ bills of expenses from hospital/treatment center abroad. 3.APP. Copy of the extra-judicial settlement and partition duly registered with Register of Deeds. proof of receipt of the proceeds of the policy. and 2. Proof of ownership of the asset(s) by emigrant/beneficiary abroad. For remittance of proceeds of sales of personal property. husband.12. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 . deed of sales or broker’s sales invoice. Copy of court order approving the partition and distribution of estate. Consular certificate or its equivalent documents to prove that the dependent is residing abroad dated not earlier than one year from FX application date. copy of deed of sale. 7. In case of income from real properties. and 9. 6. ii. For transfer of proceeds of life insurance benefits. 8. In case of retirement benefits. In case of capital transfer of testate and intestate inheritance and legacies: i. In case of transfer of proceeds of capital assets. evidence of receipt of retirement benefits.31 4. Proof of residence of emigrant beneficiary abroad. whichever is applicable. adoption papers. and/or 2. 6. to prove that dependent is the wife. 4. Certification issued by hospital abroad on the treatment to be administered to the patient including cost estimate. 5. a statement of rentals/income earned. 1. and 2. Photocopy of the ACR and DOLE Alien Employment Permit of the foreign national. Agency agreement. Agent’s Statement of Account/ Computation of commission in accordance with agency agreement. and 2. Commssions on Exports due Foreign Agents 1. Billings for membership dues/ registration fees. Subscriptions to foreign magazines or periodicals Billing/Statement of Account. Copy of distributorship contract.12. Producers' Share in Movie Revenue/TV Film Rentals 1. If amount to be remitted comes from sources other than salaries. and 2. Statement of remittance share rental. Freight Charges on Exports/Imports 1. and 3. 9. Bills/Statements of account on freight charges. 8. Billing/Statement of Account 14. Original statement of accounts or bills or invoices. and 2. Copy of advertising agreement. Salary/bonus/divident/other benefits of foreign expatriates (including peso savings) 1. 13. 12. Employment contract/Certification of employer on the amount of compensation paid to the foreign national during the validity of the contract stating whether the same had been paid in foreign exchange. 1. 10. and 2. Charter or Lease of Vessels/Aircrafts or lease agreement. N Regulations Appendix N-8 .Page 6 Manual of Regulations for Non-Bank Financial Institutions . Foreign Advertising Costs 1. N-8 05. and 2. Proof of membership in the foreign or international association.31 7.APP. information regarding the sources supported by appropriate documents should be submitted. 2. Charters and Leases of Vessels/Aircrafts and other type of leases. Copy of Bill of Lading 11. Membership dues and registration fees to associations abroad 1. Statement/Computation of the Royalty/ Copyright/Patent/Licensing Fee Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 . Copy of DOLE-approved contract of employment. and 2. Copy of the agreement/contract. Income taxes due to Foreign Governments from foreign nationals 1. Salvage fees 1. Statement of Net Peso Revenues (Peso Receipts less Disbursements) for the period covered by the remittance. Billings/invoices from the beneficiary. and 2. Insurance/Reinsurance Premium Billings/Invoices from foreign insurer/ reinsurer 22. 18. and 2. Copy of Contract/agreement. 17. and 2.31 15. radio. Copy of the General Sales Agency or certified copy of the Bilateral Air Agreements.Page 7 . Copy of contract for salvage services. and 2.APP. 1. 20. Port disbursements abroad of aircraft and vessels of Philippine registry or chartered/leased by domestic operators 1. 19. N-8 05. and 2. 23. 16. and 2. 24. Copy of income tax return covering the income tax payment sought to be remitted. Copy of contract or agreement. Copy of contract or agreement. 21. satellite and other communication facilities. Mail fees/International settlement of accounts for telegraph. counsel. Services/Consultancy/Management/ Distributorship Fees with foreign firms or individuals 1. Statement of accounts/bills/invoices. Claims for losses and other paymentsof insurance companies/brokers abroad Billings/Invoices of insurance companies/ brokers abroad. Statement/Computation of fees due. Copy of the pertinent agreement. telegram. Statement of account/bills/invoices. and 2. agent or representative abroad 1.12. Net Peso Revenues of Foreign Airlines/ Shipping Companies 1. Statement of accounts/bills/invoices. Royalty/Copyright/Franchise/Patent/ Licensing Fees 1. Retainers' Fees Foreign exchange payments by residents to foreign professionals acting as liaison. as amended Foreign Currency Loan Payments Documents should all be originals unless otherwise indicated. 1993. Schedule showing summary of the foreign currency billings received from international credit card companies abroad and the corresponding peso collection thereof.1). Medium/Long-term Foreign currency Loans (with original maturities of over 1 year) 1. B.Page 8 Manual of Regulations for Non-Bank Financial Institutions . Settlement report from international credit card companies identifying the nature of various obligations. and where applicable. “Schedule of Payment for Fees & Other Charges on BSP-Registered Foreign Loan” (Schedule RA-2. Remittance of FX purchased shall coincide with the due dates of the obligations to be serviced. Payment of FX obligations by Philippine credit card companies to international credit card companies (e. 26. and 1.31 25. Amounts that may be purchased shall be limited to maturing amounts on schedules due dates indicated in the registration letter. Visa International and Mastercard International) including peso collection from local credit card holders as payment of bills received from non-resident merchants and other fees/charges. N-8 05. and 3. Sale of Foreign Exchange for payment of foreign currency loans covered by Sections 22 to 31 of Circular 1389 s. N Regulations Appendix N-8 .a BSP registration letter and accompanying “Schedule of Principal and Interest Payments on BSP-registered Foreign Credits" (Schedule RA-2). 2. unless otherwise approved by the BSP.g. The FX selling FXDs/MCs shall duly fill up the originals of the appropriate schedules to record the FX sale.b Copy of billing statement from creditor. Remittance of Net Peso Revenue collected by embassies of foreign countries Certification from the Ambassador/Embassy authorized officer that the Peso amount applied for conversion to foreign currency is net of local expenses. FXDs/MCs shall indicate sale of FX on the prescribed documents 1.APP.12. Letter of undertaking or sworn certification stating that local credit card company has not purchased foreign exchange in excess of the amount of their foreign currency requirement. 1. b Copy of billing statement from creditor. The FX selling FXDs/MCs shall stamp “FX SOLD”. the “Schedule of Foreign Exchange Purchases from the Banking System”. on the original of such schedule. the date’s of sale and the amount/s involved on the original BSP approval/registration letter. Amounts that may be purchased shall be limited to the unutilized balance of the letter-authority. Loans from offshore creditors (banks and non-banks) 1. and 1. Remittance of FX purchased shall coincide with the due dates of the obligations to be serviced.Page 9 . Short-term Foreign Currency Loans (with original maturity of up to 1 year) a. unless otherwise approved by the BSP.b Copy of billing statements from creditor.a BSP approval or registration letter showing loan terms and borrower’s receiving copy of its report on the shortterm loans submitted to BSP’s International Department (ID). unless otherwise approved by the BSP.a BSP letter-authority for the borrower to purchase FX to service specific loan account/s and where applicable. N-8 05. whichever is lower. or (b) the outstanding balance of the loan indicated in the report.12.APP. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 .31 OR: 2. and 2. The FX selling FXDs/MCs shall record the date/s and amount/s of FX sold on the original BSP letter-authority or where there is an accompanying schedule for FX purchases. Amounts that may be purchased shall be limited to: (a) amounts/rates indicated in the BSP approval or registration letter. 1. Remittance of FX purchased shall coincide with the due dates of the obligations to be serviced. N Regulations Appendix N-8 . or (b) the outstanding of the loan indicated in the bank certification. the date/s of sale and the amount/s involved on the original BSP approval/registration letter or bank certification. The FX selling FXDs/MCs shall stamp “FX SOLD”. on the principal amount still outstanding.a For loans not requiring BSP approval/ registration.b.31 b. and 1.Page 10 Manual of Regulations for Non-Bank Financial Institutions . N-8 05. that the loan is eligible for servicing with FX purchased from the banking system in line with existing regulations. This may be dispensed for new loans which may not have been reported yet to BSPas of date of application to purchase FX. iii. Amounts that may be purchased shall be limited to: (a) amounts/rates indicated in the BSP approval or registration letter. ii. and iv. that loan was used to finance trade transactions (as well as pre-export costs in the case of FCDU loans of exporters) of the borrower. Remittance of FX purchased shall coincide with the due dates of the obligations to be serviced. Loans from FCDUs/OBUs 1.APP. Copy of billing statement from creditor.12. unless otherwise approved by the BSP.a BSP approval or registration letter showing loan terms or certification from the lending bank on the amount outstanding. the date when the loan account has been reported to the appropriate BSP department/office under the prescribed forms. OR: 2. whichever is lower. promissory note (PN) certified as true copy by the Head of the lending bank’s loans department and certification from the lending bank: i. 31 The FX selling FXDs/MCs shall stamp “FX SOLD”. whichever is lower. Broker’s sales invoice. Broker’s sales invoice. as amended 1.12. If the selling/remitting FXD/MC is not the registering custodian bank: a. unless otherwise approved by the BSP. Original BSRD Letter-Advice from the registering custodian bank.Page 11 .b Copy of billing statement from creditor. and b. Original Bangko Sentral Registration Document (BSRD). copies of the following documents shall be required: i. Capital Repatriation of: a. Broker’s sales invoice. Remittance of FX purchased shall coincide with the due dates of the obligations to be serviced. 2. C. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 . Loan agreement/promissory notes. Investment in PSE-Listed securities 1. 3. Sale of FX for capital repatriation/remittance of dividend/profits earnings and outward investments under Sections 32 to 44 of Circular 1389 s. Billing statements from creditor.APP. Original BSRD. and b. and 2. N-8 05. Note: For unregistered foreign currency loans/ obligations to non-resident financial institutions and FCDU loans not eligible to be serviced with FX purchased from the banking the system outstanding as of 27 October 2000 but which may be serviced by FXDs/MCs. If directly registered with BSP or if the selling/remitting bank is the registering custodian bank: a. Amounts that may be purchased shall be limited to amounts/rates indicated in the bank certification or PN. and ii. and b. 1993. the date of sale and the amount/s involved on the originalcertification from the lending bank. If the selling/remitting bank is not the registering custodian bank: a. 2.. gross amount of cash dividend. Original BSRD. Manual of Regulations for Non-Bank Financial Institutions . Confirmation of Sale (COS) or Deed of Sale. 2. c. proof of distribution of funds/assets such as statement of net assets for liquidation. or from the Department of Energy for oil companies. or Department of Energy or the National Power Corporation (for oil/natural gas/geothermal companies). and Confirmation of Purchase (COP). for direct equity investments or Dividend Notice.31 b. 2. 3. Remittance of Dividends/Profits/Earnings 1. Direct Foreign Equity Investments 1. Money Market Instruments or 90-day Time Deposits 1. 5. Matured Contract for Money Market Instruments or Matured Certificate of Time Deposit. BSRD No. Schedule showing name/address of investor. clearance from BSP-SES (for banks). for PSE-listed shares). tax withheld and net amount (for PSE-listed shares). and 5. Secretary’s Sworn Certification. Insurance Commission (for insurance companies). or from the Insurance Commission for insurance companies. Original BSRD or BSRD Letter-Advice from Registering Custodian Bank (if remitting/selling bank is not the registering custodian bank for PSE-listed shares). Board Resolution covering the dividend declaration (evidenced by Corporate 2.12. Original BSRD. N-8 05. Investments in Peso Government Securities. Pertinent audited financial statements.Page 12 Audited/Interim Financial Statements covering the dividend declaration period (for direct foreign equity investments). 4. in case of dissolution/capital reduction. Proof of sale or relevant documents showing the amount to be repatriated. 4. 3. Clearance from appropriate department of the BSP-Supervision and Examination Sector (SES) for banks. Detailed computation of the amount applied for in the attached format prepared by authorized officer of investee firm (Attachment 2). and For direct foreign equity investments. N Regulations Appendix N-8 .APP. 2. 1. Outward Investment 6. investment proposal/subscription agreement.Page 13 . A written undertaking to inwardly remit and sell for pesos thru AABs the dividends/earnings or divestment proceeds from outward investments funded by FX purchased from AAB as required therein. BSP approval and registration (for outward investment exceeding an aggregate of US$6.12. A project feasibility study. 3. Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 . Detailed computation of the amount applied for in the attached format (Attachment 2). and Copy of investor’s latest ITR duly stamped by the BIR. N-8 05.0 million per investor per year funded by FX purchased from AAB(s). and (b) from the Insurance Commission for investments of insurance companies. 5. bond/stock offering circular and such other documents showing the nature and place of the investment.SES for investments of banks.APP. 4. submission of clearance: (a) from the appropriate department of the BSP. Regardless of amount.31 3. Banks are enjoined to require their clients FXDs/MCs and RAs to submit a copy of their certificate of registration issued by the BSP. N Regulations Appendix N-8 .APP. The registration of FXDs/MCs and RAs with BSP is provided for under Sec.Page 14 Manual of Regulations for Non-Banks Financial Institutions . The certificates can be confirmed or verified with the BSP Supervision and Examination Department V. This requirement shall be considered as part of “Know Your Customer” compliance procedures. 4511N.31 Annex N-8-a Certificate of Registration of Foreign Exchange Dealers (FXDs)/ Money Changers (MCs) and Remittance Agents (RAs). N-8 05.12. of Shares/Amount Applied For Repatriation Selling Price/Share (if applicable) Gross Peso Amount Repatriable (A x B) Taxes/Charges Net Peso Amount Repatriable (C – D) Foreign Exchange Applied for Repatriation (E/FX rate *) Amount/No. C. ________ _ ___ _________ ____ Base Shares Registered __________ ____ _________ ______ A.12. C. F. N-8 05. ___ __ ___ Total Amount/ No. Shares Applied for Repatriation _______ _ _______ _______________ _______________ _______________ _______________ _______________ _______________ Prepared by: ______ _ _ Signature over Printed Name of Authorized Representative of Applicant Company Affiliation of Investor’s Representative ________________ Date * To be supplied by FX Selling Bank Manual of Regulations for Non-Bank Financial Institutions N Regulations Appendix N-8 . E.Page 15 . D.31 Attachment 2 COMPUTATION SHEET Name of FX Selling Bank: ________ _________ Date of FX Sale: ________ TYPE OF FOREIGN INVESTMENT TRANSACTION Remittance of Cash Dividends/Profits Repatriation of Capital Name of Investee Firm: _ _ _ _ Name of Investor: ______________________ ______________________ ______________________ ______________________ REMITTANCE OF CASH DIVIDENDS/ PROFITS Record Date: Payment Date: Amount of Dividends/Share or Rate of Profits: BSRD No. __________________ __________________ __________________ Dividends/Profits per share ___________ ____ ____________ ____ Gross Peso Amount Remittable Less: Taxes/Charges Net Peso Amount Remittable Foreign Exchange Applied for Remittance (C/FX rate*) Total Amount (Php) ____ ____ _______ _____ __________ _______________ _______________ _______________ _______________ REPATRIATION OF CAPITAL __ BSRD No. Outstanding Balance Before this Repatriation ________________ Total No. of Shares Registered ________ _______ A. B.APP. D. B.